4 reasons why PIMCO rules out that Trump can dismiss Powell from the Fed
6 AUG, 2025
By PIMCO
Authors: Tiffany Wilding, economist, and Libby Cantrill, head of public policy, PIMCO
Despite persistent rumors and occasional threats from the president, we continue to believe that it is highly unlikely that the President of the United States, Donald Trump, will move to fire the Fed Chairman, Jerome Powell, before his term ends in May 2026.
There are compelling legal, political, and practical reasons for this viewpoint:
- Legal restrictions: The most significant barrier to removing Powell is legal. Earlier this year, the Supreme Court affirmed the special status of the Federal Reserve as a quasi-private institution, whose governors can only be removed for "cause," a high threshold generally reserved for serious misconduct such as fraud. While some Republican lawmakers have tried to build a case by pointing out cost overruns in Fed building renovations, the Federal Reserve Board has quickly responded with reasonable refutations. Powell has also requested an independent review from the Inspector General and indicated privately that he would challenge any attempt to remove him, likely remaining in his position while the matter is litigated.
- Political realities: Even if Trump could legally remove Powell, doing so would be politically risky and likely counterproductive. All Fed nominees require Senate confirmation, starting with the Senate Banking Committee. Given the current political landscape, it could be difficult for Trump to get unanimous support from the committee's Republican members, especially if the move is perceived as an attack on the Fed's independence. In the committee, a single Republican vote against could derail a nomination. Two Republican members of the Senate Banking Committee, Thom Tillis and John Kennedy, have said that firing Chairman Powell should be avoided, and Tillis said it would "undermine America's credibility." Like his predecessors, Trump, in his first Administration, struggled to promote controversial Fed nominees, with several high-profile withdrawals and failed confirmations in recent years.
- Economic and market consequences: Firing Powell could entail significant market risks. Past speculations about his possible dismissal have led to higher long-term interest rates and falls in stock markets, results contrary to the administration's objectives. Prominent economists and former Fed officials have warned that such a move could undermine confidence in the central bank, increase inflation expectations, and question the unique global status of the United States capital markets. The likely consequences: steeper yield curves, higher rates, and a weaker dollar.
- Institutional controls: Finally, as noted earlier, it is important to remember that the Fed chairman has only one of the 12 votes on the FOMC that sets monetary policy. Even if Trump installed a politically partisan chairman, it is far from certain that the rest of the committee would support a dramatic change in policy. It is worth noting that of the seven current members of the Fed's Board of Governors, all of whom vote on the FOMC, only two were nominated during Trump's first term, while the others were nominated by President Joe Biden.
In the coming years, barring an unexpected negative economic shock or more worrying underlying inflationary pressures, we expect a steady return to a neutral monetary policy stance, first under Powell's leadership until May, and then under the next Fed chairman. The Fed's independence, combined with economic fundamentals and institutional controls, supports this baseline outlook.
In the short term, while Trump is likely to continue criticizing the Fed and advocating for lower rates, we do not expect him to try to fire Powell. Instead, Trump will begin to shape the Fed through the upcoming appointments, starting with the expiration of Governor Adriana Kugler's term in January and Powell's chairmanship in May (Powell's term as governor, distinct from his role as chairman, extends until January 2028).
Whoever Trump chooses as the next chairman, like any Fed leader, will have to present a credible case for the monetary policy decisions that first get Senate confirmation and then majority support from the FOMC. As with other institutions in the United States government system, the Fed is structured with built-in checks and balances that limit the ability of any individual to drastically change its policy trajectory.
