Threats to the Fed’s Independence Undermine Its Credibility

by Larry Adam of Raymond James, 7/21/25

Key Takeaways

  • Trump cannot fire Powell because he disagrees with the Fed’s policy stance
  • Threats to the Fed’s independence undermine its credibility
  • Presidents generally have limited power to stack the Fed board in their favor

Will he or won’t he? That’s the question on investors’ minds as tensions rise between President Trump and Fed Chair Jerome Powell. This week, lower than expected inflation (from both the CPI and PPI reports) has only deepened Trump’s frustration with Powell, who has so far resisted calls to cut interest rates. For months, there have been whispers that Trump might even appoint a so-called ‘Shadow Fed Chair.’ Until now, those rumors haven’t led to any concrete action. But things escalated this week. Congress launched a formal investigation into Powell’s management of a major Fed HQ renovation—an inquiry that, theoretically, could be used as grounds to remove him ‘for cause.’ Meanwhile, Trump floated the idea of firing Powell before his term ends in May 2026, but later walked back the comment. Whether it’s just political posturing or a serious threat, the idea of removing a sitting Fed Chair would be unprecedented—and could shake investor confidence and global markets. Below, we address the top three questions we’ve been hearing.

Can The President Lawfully Fire A Fed Chair? | This would be unprecedented. While President Trump has frequently criticized the Fed, the Federal Reserve Act of 1913 does not give presidents the legal authority to remove Fed officials simply because they disagree with the Fed’s monetary policy. In fact, a recent Supreme Court ruling that expanded presidential power to remove leaders of other independent agencies—like the National Labor Relations Board—explicitly carved out protections for the Fed. This suggests that removing Powell would face a much higher legal bar, and for now, he appears relatively secure in his position. That said, the law does allow removal “for cause”—a clause that’s never been tested. This is where the controversy over the Fed’s HQ renovation comes in. Originally proposed in 2019, the project has faced delays and cost overruns, partly due to health-related upgrades like asbestos removal. Critics argue Powell may have mismanaged the project or misled Congress, potentially laying the groundwork for a challenge. Whether these claims have legal merit remains uncertain, and in our view, the case is unlikely to hold up. Still, the increased scrutiny has led to a modest rise in market-implied odds that Powell could be removed before the end of the year—though those odds remain low, at around 20%.