Let’s be real: the relationship between Donald Trump and Jerome Powell is basically a long-running soap opera for people who obsess over interest rates and inflation. It’s messy. It’s loud. And right now, in early 2026, it has reached a fever pitch. With the Department of Justice opening investigations into Fed headquarters renovations and Trump calling Powell a "jerk" in Detroit Economic Club speeches, everyone is asking the same question.
Can Trump terminate Powell? The short answer? It’s complicated. Like, Supreme Court-level complicated.
If you’re looking for a simple "yes" or "no," you won’t find it in the Federal Reserve Act of 1913. That’s because the law was written with a specific kind of "shield" to keep politicians from treating the central bank like a personal piggy bank. But as we’ve seen with this administration, shields can be tested.
The Legal Reality: "For Cause" vs. "At Will"
In most of the government, if the President doesn't like you, you're gone. Pack your bags. That is called serving "at will." However, the Federal Reserve is different. The law says members of the Board of Governors can only be removed "for cause."
What does "for cause" actually mean?
Legally, it usually boils down to three things: inefficiency, neglect of duty, or malfeasance in office. Essentially, you have to be bad at the job or break the law. You cannot be fired just because you won't lower interest rates when the President asks. That’s the core of Fed independence. If a President could fire a Fed Chair for policy disagreements, the markets would likely freak out, fearing that inflation would skyrocket just to help a politician get re-elected.
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The 2026 Pretext: The Renovation Investigation
Fast forward to right now. The Trump administration isn't just complaining about interest rates; they’ve shifted tactics. The Justice Department, led by U.S. Attorney Jeanine Pirro, has issued subpoenas regarding a $2.5 billion renovation project at the Fed’s Washington headquarters.
Trump has openly wondered if "fraud" was involved in those cost overruns.
This is where the "can Trump terminate Powell" question gets scary for economists. If the DOJ finds—or even alleges—malfeasance related to these renovations, Trump might argue he has the "cause" required by law to remove Powell. Powell has already fired back, calling the investigation a "pretext" to punish him for not bowing to political pressure on rates.
It's a high-stakes game of chicken.
Why the Supreme Court is the Wild Card
You’ve probably heard of the "Unitary Executive Theory." It's this idea that the President should have total control over the executive branch. Recent Supreme Court cases like Seila Law and Collins v. Yellen have moved in this direction, making it easier for Presidents to fire heads of agencies like the CFPB.
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However, the Court has dropped hints that the Fed might be "different."
On January 21, 2026, the Supreme Court is scheduled to hear Trump v. Cook. This case involves Fed Governor Lisa Cook, but the ruling will basically decide if the Fed's "for cause" protection is even constitutional anymore. If the Court rules that the President has the power to fire any executive officer at will, then the "for cause" shield for Powell evaporates instantly.
The "Two Kevins" and the May Deadline
Powell’s second term as Chair ends in May 2026. Trump has already said he’s made up his mind on a replacement, mentioning "the two Kevins"—Kevin Warsh and Kevin Hassett.
But there is a massive catch.
Even if Powell is replaced as Chair, he has a separate term as a Governor that lasts until January 31, 2028. Historically, Chairs leave the board when their leadership term ends. Powell, however, might stay. If he stays on the board, Trump might not have enough votes to get the interest rate cuts he wants, even with a hand-picked Chair.
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Republican Senator Thom Tillis has already said he’ll block any new Fed nominees until the "legal cloud" over Powell is cleared. This means we could be looking at a vacant Chair seat in June, with Powell still sitting on the board, refusing to budge.
What Happens if He Actually Tries It?
If Trump actually signs a pink slip for Powell before May, expect immediate chaos.
- The Lawsuit: Powell would almost certainly sue. He’s already signaled he won't go quietly.
- Market Volatility: Investors hate uncertainty. The dollar would likely take a hit, and bond yields could spike as "Fed independence" becomes a memory.
- The "Acting" Problem: If Powell is removed, Vice Chair Philip Jefferson would likely become Acting Chair. It doesn't mean Trump automatically gets his way.
Honestly, the most likely path isn't a dramatic firing. It's a war of attrition. By using the DOJ investigation to pressure Powell, the administration is trying to force a resignation. But Powell, at 72, seems to view himself as the last line of defense for the Fed's 113-year history of independence.
Actionable Insights for Investors and Observers
If you’re trying to navigate this mess, don't just watch the headlines; watch the legal filings.
- Monitor the Supreme Court: The Trump v. Cook arguments on January 21 are the real signal. If the justices sound skeptical of "for cause" protections, Powell’s job security is effectively zero.
- Watch the Senate Banking Committee: Even if Trump wants a "loyalist" Fed Chair, he needs 51 votes. With GOP senators like Tillis and Murkowski expressing concern over Fed independence, a radical nominee might not get through.
- Don't bet on a "Volcker" moment: Regardless of who is in the seat, the Fed's mandate is inflation and employment. If the President successfully terminates Powell and installs a "dove" who cuts rates too fast, keep a very close eye on long-term inflation expectations in the bond market.
The question of whether Trump can terminate Powell is no longer a theoretical debate for law professors. It is a live-wire political crisis. Whether through the front door of a Supreme Court ruling or the side door of a criminal investigation, the "independence" of the US central bank is facing its biggest test since the 1930s.
Keep an eye on the May deadline. If Powell stays on the board past his Chairmanship, the friction between the White House and the Fed will only get weirder.