Money makes people crazy, and in Washington, nothing makes people crazier than the Federal Reserve. For years now, we’ve watched a high-stakes staring contest between Donald Trump and Fed Chair Jerome Powell. It’s the ultimate power struggle. On one side, you have a president who views low interest rates as the "fuel" for his economic engine. On the other, you have a soft-spoken lawyer-turned-banker who insists the Fed doesn't take orders from the Oval Office.
You’ve probably seen the headlines. Trump gets frustrated with a rate hike or a lack of cuts and starts hinting that he might just boot Powell out of the building. But here’s the thing: he hasn't. And honestly, he kinda can't—at least not in the way he fires a Cabinet member like the Secretary of State.
It’s not just about politics. It’s about a messy, century-old legal shield that keeps the "lender of last resort" from becoming a political piggy bank.
The Legal Wall: "For Cause" vs. "For Fun"
Most people think the President of the United States can fire anyone in the executive branch. Usually, that’s true. If the President doesn't like the way the Secretary of Commerce is dressing, he can show them the door. They serve "at the pleasure of the President."
But the Federal Reserve is different.
Under the Federal Reserve Act of 1913, members of the Board of Governors—including the Chair—can only be removed "for cause." That is a massive legal distinction. It means the President can't just fire Powell because they had a spat over interest rates or because the stock market had a bad Tuesday.
What actually counts as "cause"? The law is annoyingly vague, but legal scholars like those at the Brookings Institution and Columbia Law School generally agree it means things like:
- Inefficiency
- Neglect of duty
- Malfeasance in office (basically, breaking the law)
- Corruption or gross negligence
Policy disagreements don't count. If Trump tried to fire Powell solely because Powell refused to cut rates to zero, the Fed would likely sue, and the courts would almost certainly side with Powell.
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The 2026 Reality: Investigations and Loopholes
As we sit here in 2026, the tactics have shifted. Since the "policy disagreement" route is a legal dead end, the administration has been poking around for actual "cause."
Recently, there’s been a lot of noise regarding the Federal Reserve's massive headquarters renovation project. Critics in the White House have floated the idea that cost overruns on these buildings could be framed as "gross mismanagement" or "neglect of duty." It’s a bit of a stretch, but it’s the kind of technicality you look for when the front door is locked.
We’ve even seen the DOJ get involved with grand-jury subpoenas related to these claims. Powell, for his part, hasn't blinked. In a rare and frankly stunning video message, he basically told the public that the threat of criminal charges was just a "consequence" of the Fed doing its job and ignoring political pressure.
It’s getting ugly.
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Why the Supreme Court is the Wild Card
There is a big "but" in this whole story, and it sits across the street at the Supreme Court.
For nearly 90 years, a case called Humphrey's Executor (1935) has been the bedrock of this independence. It basically said Congress has the right to create "independent" agencies where the leaders aren't just puppets of the President.
However, the current conservative court has been chipping away at this "fourth branch" of government. In cases like Seila Law (2020) and Collins v. Yellen (2021), the justices ruled that the heads of the CFPB and FHFA could be fired at will.
Why the Fed might still be safe
Even the most "unitary executive" loving justices seem to hesitate when it comes to the Fed. Why? Because the Fed is a "multi-member board," not a single director. The court has hinted that the 14-year staggered terms of Fed governors are a special case designed to ensure economic stability.
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The "Shadow" Fed Chair Strategy
Since firing Powell is a legal nightmare that could trigger a global market meltdown, the Trump administration has been flirting with a "Plan B."
Instead of a messy firing, they’ve discussed appointing a "Shadow Fed Chair." This would involve nominating a successor early—someone like Kevin Hassett or Scott Bessent—and having them act as the "de facto" voice of the administration's monetary policy while Powell’s term runs out.
Powell’s current term as Chair officially ends on May 15, 2026. (Though he could technically stay on as a regular Governor until 2028, most Chairs leave the building entirely once their leadership term is up).
What Happens if He Tries Anyway?
Let’s say the President ignores the lawyers and tweets "You’re Fired" at Powell tomorrow. What happens?
- Market Chaos: Investors hate uncertainty. If the independence of the Fed is compromised, the "inflation premium" on bonds would skyrocket. Mortgage rates would likely jump instantly because investors would no longer trust the Fed to keep prices stable.
- The FOMC Rebellion: The Fed Chair is just one vote on the Federal Open Market Committee (FOMC). Even if Powell was gone, the other regional bank presidents and governors—who are not presidential appointees—could simply continue his policies.
- Constitutional Crisis: We’d be in uncharted waters. A lower court might issue an injunction, meaning Powell would show up to work while the Secret Service is told to keep him out. It’s the kind of thing that makes for great TV but terrible economies.
What You Should Watch For
If you're trying to figure out if the Fed's independence is actually in danger, don't just listen to the rhetoric. Look at the technicalities.
- The Lisa Cook Case: Watch how the Supreme Court handles the removal of Governor Lisa Cook. If they rule that the President can fire her for "appearance of impropriety," the shield around Powell gets a lot thinner.
- Senate Confirmations: Trump is already vetting replacements for May 2026. The real battle isn't about firing Powell anymore; it's about making sure the next person is more "loyal."
- The Renovation Probe: If the DOJ actually finds a "smoking gun" regarding the building costs, that "for cause" firing becomes a much more viable legal weapon.
Honestly, Powell is likely going to make it to the finish line in May. The legal hurdles are just too high, and the risk of a "Trump Crash" in the stock market is the one thing the President wants to avoid more than anything else.
Actionable Insights for Your Portfolio
- Volatility is the new normal: Expect market swings every time a "Fed investigation" headline drops.
- Watch the 10-Year Treasury: This is the real-time "trust meter" for Fed independence. If the yield spikes while the Fed is quiet, it means the market is getting nervous about political interference.
- Don't bet on a mid-term replacement: The legal consensus remains that Powell is safe until his term expires, barring a massive personal scandal.
The Fed was built to be boring. It was built to be the "adult in the room" that says "no" when the politicians want to party. Whether it can stay that way in 2026 is the biggest question in global finance.