Investing.com deep dive: Is Jerome Powell’s job safe amid Trump's threats?

Investing.com -- Federal Reserve Chair Jerome Powell is once again in the crosshairs of U.S. President Donald Trump, who is openly threatening to fire him unless the central bank cuts interest rates.

Fresh wave of criticism, delivered via Truth Social and reinforced in comments to reporters, raises fresh concerns over the independence of the U.S. Federal Reserve and the potential consequences for markets and monetary policy. Trump’s frustration with Powell stems from the central bank’s reluctance to lower rates to offset the economic drag caused by the president’s own tariff policies.

While Powell’s term doesn’t expire until next year, Trump’s remarks have reignited debate over whether a president can legally remove a Fed chair midterm—and what such a move would mean for the credibility of U.S. monetary policy.

"It would be far too damaging to the credibility of U.S.," Tom Bruce, macro investment strategist at Tanglewood Total Wealth Management, told Investing.com.

Trump’s Latest Threats to Powell

President Trump escalated his attacks on Federal Reserve Chair Jerome Powell this week, renewing calls for his removal and criticizing the Fed’s handling of interest rates.

In a post on Truth Social, Trump wrote, “Jerome Powell of the Fed, who is always TOO LATE AND WRONG, yesterday issued a report which was another, and typical, complete ‘mess!’ Oil prices are down, groceries (even eggs!) are down, and the USA is getting RICH ON TARIFFS.”

He added, “Too Late should have lowered Interest Rates, like the ECB [European Central Bank], long ago, but he should certainly lower them now. Powell’s termination cannot come fast enough!”

A day later, Trump doubled down, saying, “If I want him out, he’ll be out of there real fast, believe me.”

The remarks come as Trump faces growing economic headwinds tied to his own trade policies and seeks lower interest rates to cushion the impact.

Tom Graff, Chief Investment Officer of Facet Wealth, believes that the Fed is already in a tricky situation.

"Any action they take will seem somewhat political," he said to Investing.com. "Trump ramping up political pressure is only going to encourage them to try to show their independence.

At best it has no effect, but it could cause the Fed to wait on cutting."

Can a President Fire the Fed Chair?

Legally removing the Federal Reserve Chair is far from straightforward—and potentially unprecedented. Jerome Powell’s current term as chair runs through May 2026, and while the president appoints the Fed chair, the law does not clearly authorize dismissal without cause.

"I think it’s unlikely the President would attempt to fire Powell. It’s questionable whether he even has the legal authority to do so—and even if he did, his advisors would likely steer him away from such a destabilizing move," Bruce said.

Most legal experts agree that a Fed chair cannot be removed over a mere policy disagreement, especially one concerning interest rate decisions. Powell himself has repeatedly emphasized that the Federal Reserve’s independence is protected by law. “Our independence is a matter of law,” he said in recent remarks.

Any attempt to fire him would likely provoke a major legal challenge, which, according to reporting from The Wall Street Journal, Powell is prepared to fund personally. The White House, however, appears increasingly open to challenging longstanding institutional norms.

The Justice Department is currently seeking to overturn a 90-year legal precedent that protects regulatory officials, including those at the Fed, from removal over policy disputes. If successful, that challenge could weaken the legal protections surrounding Powell’s role.

Historical precedent offers little guidance, as no sitting Fed chair has ever been fired.

"I do not expect Trump to actually try to fire Powell, although unfortunately we can't rule it out," Graff added.

Implications for Markets and the Economy

While political pressure on the central bank is not new, an outright attempt to remove the chair would likely trigger severe market volatility and damage global perceptions of U.S. monetary stability.

"Firing Powell would likely backfire by pushing long-term Treasury yields higher, contradicting the administration’s stated preference for lower yields," Felix Vezina-Poirier, a cross-asset/global macro strategist at BCA Research, wrote in a client note.

Bruce added that such a move "would be extremely negative for market confidence."

"The U.S. dollar would likely come under significant pressure, while gold would benefit from both the loss of confidence and the potential for looser monetary policy. Stocks might initially sell off, but some sectors could rally if investors expect easier policy or use equities as an inflation hedge.

Bonds could struggle also due to the loss of confidence and rising inflation expectations, but if markets anticipate potential quantitative easing that might offer some support," Bruce told Investing.com.

Similarly, Graff argues that Trump's closest economic advisors are likely "warning him of the market chaos that could create, and that it is better to just wait until Powell's term is up in 2026.

I'd expect the dollar to drop materially, and for long-term bond yields to spike higher. Ultimately this would have no positive effects for the President," Graff added.

In the meantime, the central bank faces an especially difficult balancing act. Trump’s sweeping new tariffs are far broader than those in his first term and risk pushing up prices in the short term. That poses a challenge for the Fed, which is already grappling with inflation above its 2% target.

A trade war-driven supply shock could force the Fed to choose between curbing inflation and supporting the labor market—two goals that may increasingly come into conflict.

Rate cuts might cushion the economy, but if inflation remains stubbornly high, such moves could backfire. Conversely, tightening policy to contain prices could worsen job losses. In this scenario, no interest rate decision is without economic pain.

What's next for Powell and the Fed?

Even if a near-term legal or political clash between President Trump and Fed Chair Jerome Powell is avoided, Trump will still have a chance to reshape the Federal Reserve when Powell’s term ends in 2026. That future appointment could give him lasting influence over U.S. monetary policy—regardless of whether Powell is removed.

Ultimately, the Fed cannot solve problems that stem from political decisions. If the president wants stronger growth and more stable markets, ending the tariff campaign and advancing pro-growth fiscal and regulatory reforms would be more effective than pressuring the central bank.

"What happens after his term ends is much harder to predict, and it will depend significantly on who’s appointed next," Bruce said.

The key lesson from the Trump-Powell standoff is clear: monetary policy cannot fully compensate for an aggressive economic strategy.

This article first appeared in Investing.com