It’s the question that won't go away. Can the President actually do it? If you've been following the news lately, specifically the escalating drama between the White House and the Federal Reserve, you've likely seen the headlines. Trump vs. Powell. It feels like a heavyweight boxing match where the referee is also trying to throw a punch.
Honestly, the situation has turned into a legal and economic thriller. By early 2026, the tension between President Trump and Fed Chair Jerome Powell hasn't just simmered—it's reached a full-blown boil. We’re talking about grand jury subpoenas, "pretext" allegations, and a $2.5 billion renovation project that has somehow become the center of a constitutional crisis.
Basically, the President wants interest rates lower. He’s been vocal about it, calling Powell everything from a "numbskull" to a "stubborn moron" in public speeches and social media blasts. But the Fed isn't a department of the executive branch. It’s an independent beast.
The "For Cause" Mystery: Can He Actually Fire Him?
Here is the thing: the President cannot just say "you're fired" to the Fed Chair because he’s grumpy about the stock market.
The Federal Reserve Act of 1913 is the rulebook here. It says members of the Board of Governors (which includes the Chair) can only be removed "for cause." Now, "cause" is one of those annoying legal terms that sounds simple but is actually a giant gray area. Traditionally, the courts have interpreted this as inefficiency, neglect of duty, or malfeasance.
Policy disagreements? Nope. Not usually considered "cause."
If Trump fired Powell because the Fed didn't cut rates fast enough, Powell would likely sue. And most legal scholars, like Dan Urman from Northeastern University, think Powell would win. But that hasn't stopped the administration from looking for a different "cause."
The Renovation Rabbit Hole
This is where it gets weird. Lately, the focus hasn't been on interest rates—at least not officially. Instead, it's about a $2.5 billion renovation of the Federal Reserve’s headquarters in Washington, D.C.
The administration has been pointing at cost overruns and alleged mismanagement. In early January 2026, the Department of Justice served the Fed with grand jury subpoenas. They’re looking into whether Powell lied to Congress about the scope and cost of these renovations.
Powell isn't taking it lying down. He released a video statement—an almost unheard-of move for a Fed Chair—calling the investigation a "pretext."
"This unprecedented action should be seen in the broader context of the administration's threats and ongoing pressure." — Jerome Powell, January 2026.
Basically, he’s saying, "You're trying to frame me so you can fire me for cause and put in a 'yes-man' who will slash rates."
Why the Markets are Freaking Out
Investors hate uncertainty. They love the Fed because it’s supposed to be the "adult in the room," making decisions based on data, not the next election cycle.
If the independence of the Fed is broken, the consequences are messy.
- Bond Market Chaos: If the Fed becomes a tool of the White House, bondholders worry about long-term inflation. Why? Because a political Fed might keep rates too low for too long to juice the economy. This sends Treasury yields soaring as investors demand more "protection" against future inflation.
- The $1.5 Trillion Threat: A study from Babson College recently estimated that a Powell firing could wipe out up to $1.5 trillion in stock market value. It’s a massive number. Even the hint that a firing letter was being drafted back in July 2025 caused a temporary market dip.
- The Dollar’s Reputation: The U.S. Dollar is the world’s reserve currency because people trust the system. If the system looks rigged or unstable, that trust erodes.
It's not just about one man’s job. It’s about the credibility of the entire American financial system.
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The "Shadow Fed" and the 2026 Timeline
While the legal battle rages, Trump has already been making moves to change the Fed from the inside. He nominated Stephen Miran to the board, a known "hawk" on rates who has consistently voted for larger cuts than the majority.
There's also talk of a "potential Fed chair" being vetted. Names like Scott Bessent and Kevin Warsh are constantly floating around. Trump even teased a new selection during a White House event in late 2025, essentially telling Powell his time is up regardless of the law.
Powell’s term as Chair ends in May 2026. However, his term as a Governor doesn't end until 2028. This creates a bizarre scenario: Could Trump "demote" him? Could we have a situation where the President appoints a new Chair, but Powell stays on the board and continues to fight the policy from the inside? It would be an "Avignon Fed" situation—two rival power centers in one building.
What Most People Miss: The Supreme Court Factor
The real "wild card" isn't Trump or Powell. It's the Supreme Court.
In recent years, the Court has been chipping away at the power of independent agencies. Cases like Seila Law LLC v. CFPB showed that the Justices are skeptical of leaders who can't be fired by the President. While the Fed has historically been treated as a special case because of its role in the global economy, this current Court might be willing to rethink that.
If the DOJ actually indicts Powell over the renovations, the "for cause" argument becomes much stronger. A criminal indictment is a lot harder to fight than a policy dispute.
Actionable Insights for the Average Person
You might be thinking, "This is all high-level politics, why do I care?" Well, because your mortgage, your 401k, and the price of a gallon of milk are all tied to this.
- Watch the 10-Year Treasury Yield: This is the best "fever thermometer" for this crisis. If it starts spiking while the Fed is trying to keep rates low, it means the market is losing faith in the Fed's independence.
- Diversify Beyond the Dollar: If you're worried about the stability of the U.S. financial system, make sure your portfolio isn't 100% tied to U.S. equities. International stocks or "hard assets" like gold often act as a hedge during domestic political instability.
- Lock in Fixed Rates: If you're planning to borrow money and the "Trump fire Jerome Powell" headlines are peaking, volatility is coming. Fixed-rate debt protects you from the swings in the bond market that this feud creates.
The reality is that we are in uncharted territory. No President has ever successfully fired a Fed Chair. If it happens, the legal fallout will likely last years, but the economic fallout will happen in seconds.
Keep an eye on the DOJ investigation. That’s the "tell." If the subpoenas turn into actual charges, the 112-year streak of Fed independence might finally be coming to an end. This isn't just a personality clash; it’s a fundamental shift in how the American economy is managed.
To stay ahead, keep a close eye on the court filings regarding Fed Governor Lisa Cook as well. Her legal battle over a similar "for cause" removal attempt is currently serving as the test case for whether the White House can bypass the usual protections of the Federal Reserve Act. The outcome of her case, expected early this year, will likely dictate the President's next move against Powell himself.
Source References:
- Federal Reserve Act, Section 10 (12 U.S.C. § 241)
- Humphrey's Executor v. United States (1935)
- Seila Law LLC v. Consumer Financial Protection Bureau (2020)
- Department of Justice subpoenas issued to Federal Reserve, January 2026