What Happens if Trump Fires Powell? A Former White House Advisor on Multiple Scenarios.

Trump and Powell in 2017. (Drew Angerer/Getty Images)

President Donald Trump threatened on Wednesday to fire Federal Reserve Chair Jerome Powell, citing cost overruns in Fed building renovations as a potential cause. While Trump has since played down the idea, the mere possibility raises big questions about Fed independence and market stability. Among them are the legal complexities, market implications, and political realities surrounding this unprecedented scenario.

The Fed disputes any wrongdoing, and says the administration lacks legal authority over its facilities. Powell has said on multiple occasions that he has no intention of stepping down as Fed chair.

The Federal Reserve Act, which established the Fed as the official central bank of the U.S., says that the Fed has control over its buildings. The Fed has reiterated that the project is funded through its own budget financed by interest earned on the securities it owns and fees collected for other services, not by taxpayer dollars.

Barron’s spoke with Tobin Marcus, head of U.S. policy and politics with Wolfe Research and a former White House advisor during the Obama era, about what could unfold if Trump follows through on such a move.

An edited version of our conversation is below.

Barron’s: Trump publicly walk-backed his threats to fire Jerome Powell, but how serious do you think the risk is?

Tobin Marcus: The president is clearly very frustrated with Powell and wants someone else in there sooner rather than later. That much is clear. But I think it’s also fairly clear that firing Powell wouldn’t achieve the stated goal of immediately bringing down the long end of the yield curve. For that reason, I think he ultimately won’t do it.

It’s always been our base case that he would be deterred by the threat of market backlash, even though he’s publicly floated it for so long. Treasury Secretary [Scott] Bessent will clearly be advising him not to do it. That doesn’t mean Trump can’t make moves that Bessent would advise against. I think Bessent and other senior folks attuned to markets would be able to get in the room and persuade him not to go forward.

Trump said he solicited views from congressional Republicans who all wanted him to fire Powell, but then claimed he was “more conservative” and would give Powell a chance. What’s the significance of this?

It is important that this particular group was primarily House conservatives who are more prone to cheerleading relatively dramatic moves to shake up the status quo, compared with Senate Republicans who’ve gone on record saying they think this is unwise. No matter what policy disagreements they have with Powell, they think Fed independence is important.

I don’t think congressional Republicans are in lockstep behind firing Powell. Many are very concerned, though not concerned enough to restrain him, and I don’t think Senate Republicans would threaten not to confirm a successor. But they would prefer he not do it. Based on Trump’s subsequent statements, it sounds like venting to a sympathetic audience of House conservatives.

You describe the renovation cost overruns as a potential legal pretext for Trump to fire Powell. How much weight would that “cause” actually hold in court?

It is fairly clear from what the Supreme Court has written in other independent agency firing cases that they aren’t going to support a firing without cause. The question is: what constitutes cause?

Gross mismanagement generally is a reasonable form of cause. But the fact that there’s so much in the public record suggesting that is not the real reason probably won’t help the president in litigation. And the cost overruns aren’t particularly out of line for government construction projects. These buildings haven’t been renovated in 100 years. The costs are very high, but so were the original projections.

The overruns seem attributable to Covid-related cost increases and encountering more asbestos than originally anticipated. Has the renovation been perfectly executed? Probably not. But the idea that is the reason to fire him is obviously pretextual.

Can you outline some possible scenarios if Trump moves forward with the firing?

You have Powell remaining as de facto chair, leaving voluntarily, or being physically removed. The way most independent agency firings have gone, commissioners immediately have their access cut off and are removed. But those situations involved non-chair commissioners.

This is different because Powell runs the agency, and Trump hasn’t attempted to designate a replacement chair, although he could try to have that person fire Powell.

If there’s no one to fire him, Powell could stay on the job and Trump could litigate to have him removed. The most concerning possibility is if there’s no one to effectuate the firing and Powell doesn’t want to leave, Trump could try to have him removed by force. We saw this with the U.S. Institute of Peace in March, where competing personnel showed up and D.C. police had to decide in real time who was the legitimate leader.

Powell has made clear he isn’t going quietly and will use any legal tools to contest removal, which suggests quick removal without a fight isn’t likely. You’d probably have a period of contested control.

How long could contested control last?

Any fully appealed decision would stretch beyond the end of Powell’s term as chair in May 2026. Like many litigation tracks during this administration, the biggest questions would be about injunctions early on rather than the ultimate merits.

I’d expect the D.C. District Court to enjoin an attempt to fire Powell, as they have done multiple times before. That would be appealed and likely upheld at the circuit level, then appealed to the Supreme Court. The key crossroads would be when the Supreme Court decides whether to let a lower court injunction stay in place.

Is Powell winning in court a sure thing?

Far from it. The Supreme Court has indicated that for-cause protections are likely to be upheld for the Fed. But the question of whether you’re going to second-guess executive determinations about what constitutes cause, I think the conservative majority will be reluctant to do that.

The distinction they have drawn between the Fed and other independent agencies about the Fed’s unique history and structure is much more about their reluctance to undermine monetary policy independence. They’re concerned about protecting that institution for practical reasons. Their view of whether the renovation was grossly mismanaged will probably be subordinated to their views on monetary independence versus presidential discretion.

What would be the broader implications for Fed independence?

It is clearly not encouraging for Fed independence. This wouldn’t be the first attempt to interfere with the Fed, but it would be qualitatively different than anything since the 1970s.

If Trump tries unsuccessfully, that might not undermine investor confidence much. Having courts say the president can’t do this actually helps reinforce Fed independence. We haven’t seen tons of market reaction to the theoretical prospect, some intraday and multiday selloffs on headlines, but if it doesn’t work, markets should be able to recover.

Could Trump alternatively just demote Powell from chair to governor?

The Federal Open Market Committee picks its own chair, so if Powell remains as governor after demotion, you could have dueling chairs, Powell handling monetary policy, and someone else handling administration and regulation.

How messy that would be depends on how the rest of the committee reacts. If everyone else continues treating Powell as the monetary policy leader, it may not be messier than now. But getting a nominal leadership change through a highly irregular process makes it harder to persuade other FOMC members to go along with new policy directions.

Could Trump use recess appointments to bypass Senate confirmation for a new chair?

There has been lots of talk about recess appointments to circumvent the Senate, but it hasn’t really panned out and Trump has been able to get direct Senate confirmation for his cabinet picks.

I don’t think the leading names under consideration, like Fed governor Christopher Waller or National Economic Council Director Kevin Hassett, would be hard to confirm. It isn’t going to be hard to get 50 Republican votes for either. Senate Republicans aren’t going to boycott confirmation of a successor. You need a chair in place, so ultimately they’ll evaluate candidates on their merits.

In a wild scenario where Trump fires Powell during Senate recess, uses recess appointments for a new chair, and Powell refuses to leave, what happens?

That is totally conceivable if the president goes down this road. In the first Trump administration, we had a period where two different people represented themselves as head of the Consumer Financial Protection Bureau, which had to be resolved by courts. That is lower stakes than Fed chair, but you’d need to get in front of court quickly to have the D.C. District Court clarify the president’s authorities.

The fact that these concerning and confusing scenarios become realistic once you open the door to firing Powell under contested legal grounds weighs on my assessment of the likelihood Trump will do it. When you think through the practical realities, it starts looking counterproductive pretty quickly.

What is the number one deterrent to Trump firing Powell?

[Scott] Bessent, along with any private sector business leader that Bessent talks to—and he does quite a lot of engagement with business leaders. I think the uniform feedback he’ll get from those folks is going to be cautioning him not to go forward.

Who do you think Trump is favoring as Powell’s eventual replacement?

I’d say Hassett. Waller probably isn’t seen as quite predictable enough in terms of what the president’s looking for. [Former Fed governor Kevin Warsh’s] history of hawkishness is probably a residual concern, even though he’s in serious consideration.

I don’t think the decision has been made, so anyone who wants the job is trying to make the case publicly that they would be a good pick.

Write to Nicole Goodkind at nicole.goodkind@barrons.com