Firing the Fed chair could have sparked financial market chaos – but might the president change his mind?
While President Donald Trump backpedaled on Tuesday from previous statements that he planned on firing Federal Reserve chairman Jerome Powell, experts continue to watch what will happen if the Fed refuses to cut interest rates.
Days after saying that Powell’s termination “couldn’t come fast enough,” Trump stated Tuesday that he has “no intention of firing” Powell.
But Trump’s remarks during the past week roiled financial markets amid fears that the president would spark an economic crisis by trying to dismiss the Fed chair, with whom he’s frequently clashed.
The question over whether Trump could actually fire Powell if another row erupted between the pair will continue to linger despite his words Tuesday.
The market fallout from Trump firing Powell could take an already volatile market and make it even worse – and instability could cause interest rates to soar in the long run, according to Kenneth Katkin (pictured top), law professor at Northern Kentucky University’s Chase College of Law.
He told Mortgage Professional America a Powell termination would do more than harm the already fragile market. “In my opinion, it would hasten the nation’s current decline into autocracy,” Katkin said. “It would also destabilize our financial system.”
The prospect of Trump attempting to remove Powell alarmed markets, which had already reeled in the wake of the global trade war launched by the president on April 2.
While some of those levies have been paused and others reduced, the administration continues to add new tariffs, including proposals to introduce a 3,521% charge on Asian-produced solar panels announced on Tuesday. This could add to the already increasing costs of new home construction.
Katkin can’t predict for sure whether Trump will eventually fire Powell despite the president’s latest pullback, but he believes it would cause a financial crisis.
“No Federal Reserve board chair has ever been fired by any president,” Katkin said. “Under 12 U.S. Code § 242, the President can remove a Federal Reserve board member, including the Chair, ‘for cause.’ However, a disagreement with the president about monetary policy would not constitute ‘cause’ for a board member's removal under this statute.
“Moreover, if the board chair were fired under present circumstances, then both the stock market and the bond market would be roiled, creating a risk that a financial crisis could ensue.”
What would happen if Trump tried to ditch Powell in the future?
If Trump renews his war of words with Powell and again floats the idea of trying to dismiss the Fed chief, Katkin notes two possible options Trump could take.
“If Trump tries to fire Powell from the chairmanship, then Powell would be out of office, and vice chair Philip N. Jefferson would become the acting chair,” Katkin said. “It's not clear whether Trump would try to remove Powell from the board of governors entirely, or whether Powell would still be a board member. If Trump were to remove Powell from the board of governors entirely, there would be a vacancy that Trump could nominate someone to fill. The nominee would need to be confirmed by the US Senate before taking office.”
However, Katkin notes that if Powell is removed from the board entirely, he could sue to get his job back. However, that would likely end up at the Supreme Court, which Katkin believes would back Trump’s decision.
As Trump demands rate cuts and calls for Jerome Powell’s removal, the Fed chair insists decisions will remain free from “political pressure.” Markets now expect up to three cuts by end of 2025. https://t.co/03JpPpTvpS
— Mortgage Professional America Magazine (@MPAMagazineUS) April 17, 2025
“If Powell were removed from the board entirely, then it's likely Powell would sue to try to get his job back,” Katkin said. “Under 12 U.S. Code § 242, Powell would be entitled to reinstatement, because Powell's disagreement with the President about monetary policy would not constitute ‘cause’ for Powell's removal under this statute. However, Trump would likely argue that 12 U.S. Code § 242 is unconstitutional to the extent it limits the President's removal authority.
“Under the Supreme Court's precedents, Trump's constitutional argument would lack merit. But nonetheless, there is a fair chance that the current Supreme Court would overrule those precedents and rule in Trump's favor on his constitutional argument.”
How Humphrey’s Executor rule would be tested
Katkin notes that while there is no precedent at the Federal Reserve, other federal agencies have seen terminations challenged in court.
President Andrew Johnson was impeached because he fired secretary of war Edwin Stanton for political reasons, according to Katkin. Johnson avoided conviction by one vote in the US Senate, but Stanton did not get his job back.
Another case involved President Woodrow Wilson, who fired US Postmaster for Portland Frank Myers, which went against a statute that required Senate approval for a postmaster to be fired. Katkin said the Supreme Court sustained the firing, saying the statute’s limitation on presidential removal power interfered unconstitutionally with the president’s duty to, “take care that the laws are faithfully executed.
However, the case that could be invoked if Powell is fired involved President Franklin Roosevelt. He fired Federal Trade Commission (FTC) commissioner William Humphrey without cause, which violated the Federal Trade Commission Act.
“In Humphrey's Executor v. United States, 295 U.S. 602 (1935), the Court drew a distinction between ‘executive’ officers like the secretary of war or a postmaster, who could be fired by the President under the Myers precedent, versus ‘quasi-legislative’ or ‘quasi-judicial’ officers of multi-member ‘independent’ federal agencies like the Federal Trade Commission,” Katkin said. “The Court held that the latter may be removed only with procedures consistent with statutory conditions enacted by Congress. Thus, the President could not fire a member of a multi-member ‘independent’ board or commission solely for political reasons.”
Katkin said that since the Federal Reserve is a multi-member “independent” board, it falls under the Humphrey’s Executor rule rather than being part of the president’s administration which would fall under the Myers rule.
“Therefore, firing chairman Powell for political or policy reasons would not be legal unless the (Supreme) Court overrules Humphrey’s Executor,” Katkin said.
However, previous decisions by the current Supreme Court suggest such an overrule could happen. The court is scheduled to hear cases about two Democratic members of the National Labor Relations Board (NLRB) and the FTC who have been fired by Trump and would be covered by Humphrey’s Executor.
“The current Court has generally supported a ‘unitary executive’ theory of the presidency which is somewhat inconsistent with the approach taken by the Humphrey's Executor court in 1935,” Katkin said. “Many observers expect the Court to overrule or weaken Humphrey's Executor this year. If that happens, then the President would gain the constitutional authority to fire the Fed chair.”
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