Jerome Powell says Trump can’t fire him. That might change

In an interview with Bloomberg TV, Slaughter, who plans to sue, said her dismissal has ramifications beyond the antitrust and consumer protection agency.

“There is no legal difference between Jerome Powell and me,” she said. “If the president can legally remove me, he can legally remove Jerome Powell.”

Trump has a long record of criticizing Powell, but the FTC firings are ramping up concern among Wall Street investors and economists that the Fed’s independence may now be in true jeopardy. Any central bank’s ability to foster a healthy economy depends largely on the public’s trust that policymakers will keep inflation in check, which sometimes requires painful choices. Loss of that trust could roil global financial markets and lead to higher inflation even if Trump appointees never move to juice the economy with low rates.

On Thursday, Trump said the Federal Reserve should cut interest rates, splitting with the US central bank, which held its benchmark interest rate steady on Wednesday for a second straight meeting.

Humphrey’s Executor

The 1935 Humphrey’s case emerged after President Franklin Delano Roosevelt fired Republican FTC Commissioner William Humphrey. Humphrey had died before the legal challenge was resolved, but his estate continued the litigation.

Three months after the Supreme Court issued its decision, Congress passed legislation creating the Fed’s modern structure and insulating Federal Reserve governors from removal, except for cause.

Conservative legal scholars have long viewed the case as handing too much power to regulators and the Heritage Foundation’s Project 2025 called it “ripe for revisiting.” The Justice Department said last month the administration will no longer defend the precedent and would push the Supreme Court to reverse it.

In several recent cases, the Supreme Court has signaled that it’s primed to overrule Humphrey’s as an infringement on the president’s constitutional authority over the executive branch, said Chad Squitieri, a professor who teaches constitutional law at Catholic University. The same logic would apply to the Federal Reserve, he said.

“It’s not as scary as it might sound,” Squitieri said last month in a webinar arranged by the conservative Federalist Society. “We trust the president with the nuclear codes. We can also trust the president with managing the Fed.”

Kevin Hassett, director of Trump’s National Economic Council, said he didn’t think a Fed Governor would be fired.

“We very much respect the independence of the Fed,” he told reporters Wednesday. “Independent central banks perform better for the economy.”

Research over the past few decades has shown that central bank independence translates to lower and more stable inflation. In the 1970s, the Fed failed to cool inflation in large part because of arm-twisting from the Nixon administration.

Later, Fed Chair Paul Volcker — despite coming under pressure from the Reagan White House — raised rates repeatedly, ultimately causing a painful recession, but stabilizing price growth.

Legal Challenges

The FTC situation isn’t the only potential legal challenge involving Humphrey’s Executor. Soon after taking office, Trump fired Democratic members of the National Labor Relations Board, the Merit Systems Protection Board and an independent national security panel created in the wake of the Sept. 11, 2001, terror attacks. All three of those situations have led to lawsuits and federal judges have ordered the NLRB and MSPB officials reinstated.

The Justice Department is appealing.

The US Court of Appeals for the DC Circuit is currently weighing a request from the Trump administration to let the NLRB and MSPB firings take effect while the litigation goes forward. Should the appellate courts refuse, the administration could turn to the Supreme Court within days.

The conservative-controlled high court, in recent years, has given the president more power to fire officials. In 2020, it struck down protections Congress had given the director of the Consumer Financial Protection Bureau, saying the Constitution barred making such a powerful executive branch figure unaccountable to the president.

The 2020 ruling didn’t address the legality of multimember independent agencies, and it stopped short of overruling Humphrey’s Executor.

Fed Unique?

The Supreme Court last year hinted that, even if it overturns Humphrey’s Executor and lets the FTC commissioners be fired, it might view the Fed differently.

Writing in a case involving funding for the CFPB, Justice Samuel Alito described the Fed as a “unique institution with a unique historical background.” Fellow conservative Neil Gorsuch joined the opinion.

The main thing stopping Trump from firing Powell or other Fed members isn’t the law, but markets, said Aaron Klein, a senior fellow at the Brookings Institution.

“The reality is the Fed’s independence is being upheld, not by respect of the rule of law or long-established court precedent, but rather by the markets reaction,” he said. “Trump is too afraid of what it would do to global financial markets’ to try to seize control of the Fed.”

Price stability and low inflation become a lot harder without an independent Fed, said Michael Feroli, chief US economist for JPMorgan Chase & Co.

“One of the benefits of Fed independence is that by removing the central bank from the political cycle, there’s less pressure to sacrifice longer-term price stability for shorter-term stimulus,” he said. “A threat to Fed independence would be taken very poorly.”