President Trump's escalating pressure on Jerome Powell has ignited market turbulence and widespread speculation about the consequences of ousting the embattled Federal Reserve Chair. Such a move, unprecedented in U.S. history, would trigger landmark litigation involving Washington and Wall Street, likely culminating in a Supreme Court decision.
The latest upheaval on July 16 followed reports suggesting Trump's consideration of action against Powell, who has long drawn presidential ire for resisting interest rate cuts. Trump swiftly denied the claims, stating Powell's removal remains "highly unlikely" unless necessitated by "fraud"—a pointed reference to the Federal Reserve building renovation cost overruns. Trump allies now focus intently on this issue, attempting to frame it as legitimate "cause" for dismissal under Section 10 of the Federal Reserve Act, which permits removing Board members for "neglect of duty or malfeasance."
Should termination occur, Powell could immediately sue in Washington federal court seeking reinstatement via injunction. The presiding judge would weigh whether Powell demonstrated "irreparable harm" to both himself and the Fed during litigation. If denied, Vice Chair Philip Jefferson—a 2022 Biden appointee—would immediately assume leadership. If granted, Powell retains his position pending resolution, with appeals potentially reaching the Supreme Court.
The high court previously signaled in May that Trump cannot remove Powell without cause. While permitting unfettered dismissal power over other agency heads, justices explicitly excluded the Fed as a "uniquely structured quasi-private entity." Nevertheless, they preserved "for cause" removal possibilities. Trump's formidable Supreme Court track record—including last year's criminal immunity ruling—bolsters his position.
Boston University presidential authority expert Jed Shugerman observed, "They're clearing a path for Trump." Yet University of Kentucky law professor Jonathan Shaub cautioned that Powell's reinstatement remains uncertain even with a favorable ruling, citing narrowed judicial authority for equitable relief following the June 27 birthright citizenship decision and Justice Gorsuch's recent writings questioning restored appointments.
The case would pivot on whether renovation mismanagement constitutes "inefficiency, neglect of duty, or malfeasance"—century-old statutory terms lacking clear definition. Columbia Law scholars Jane Manners and Lev Menand interpret them as administrative waste from incompetence, illegal conduct causing harm, and failure to fulfill duties. With minimal precedent, American Enterprise Institute's Adam White noted, "These statutes have never been tested judicially, let alone in a Federal Reserve context."
The renovation controversy involves the first major overhaul of the Fed's 1930s-era headquarters. Originally approved in 2017, projected costs ballooned from $1.9 billion in 2023 to $2.5 billion in 2025 budget documents. The Fed attributes increases to design modifications, cost variances, and unforeseen complications like asbestos. Trump allies aggressively weaponize these overruns: FHFA Director Bill Pulte accused Powell of false Senate testimony (without specifics), while OMB Director Russell Vought denounced "bloated renovations." At Powell's request, the Fed Inspector General launched a cost investigation.
Powell's potential ouster wouldn't guarantee Trump's desired rate cuts. The Federal Open Market Committee—not the Chair alone—sets rates, requiring any successor to persuade 18 other members. Markets would react violently to perceived Fed independence erosion. Bloomberg's report about Powell's possible firing triggered immediate 1% S&P 500 declines, 10-basis-point 30-year Treasury yield spikes, and 1.2% dollar index drops within 30 minutes. Economist Anna Wong warned that firing the Fed Chair would ultimately stifle growth, elevate unemployment, and entrench inflation.
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