Posted originally on Apr 17, 2025 by Martin Armstrong 

I draw the line with Trump when it comes to the Federal Reserve.

The President nominates the Chair of the Federal Reserve, and the Senate confirms them. The term for the Chair is four years, but they can be reappointed. For example, Jerome Powell was nominated by Trump and then reappointed by Biden. But can a President remove the Chair before their term is up?

The Federal Reserve Act established the Federal Reserve System. Members of the Board of Governors, which includes the Chair and Vice Chair, serve 14-year terms, but the Chair’s term is four years. The key question is can Trump remove Powell? The Act states that a President can remove a Federal Reserve Board member “for cause,” but what does “for cause” mean exactly? That’s a bit vague. It probably means something like misconduct or neglect of duty, not just policy disagreements.

There was a case in the past where a President tried to remove a Fed Chair. It was Arthur Burns during the Nixon administration. Nixon wanted Burns to lower interest rates, but Burns resisted. However, Nixon couldn’t fire him because he didn’t have legal grounds. Instead, he might have pressured him in other ways. That example suggests that a President can’t just fire the Fed Chair over policy disputes.

Another example is when President Reagan reportedly considered not reappointing Paul Volcker, who was known for tough anti-inflation policies. But Volcker chose not to seek a third term, so Reagan appointed Alan Greenspan instead. This shows that while a President can decide not to reappoint a Chair, they can’t remove them before their term ends without a valid reason.

The law is structured this way to protect the Fed’s independence, which is ABSOLUTELY ESSENTIAL to prevent politicians from manipulating interest rates for their political gain. If a President could fire the Chair at will, it would undermine that independence and potentially lead to politically motivated monetary policy, potentially harming the economy in the long run. That would undermine the US Treasury market and the dollar and transform the United States into a banana republic. Therefore, the legal framework requires a high bar for removal, ensuring that the Chair can make decisions based on economic factors rather than political pressure.

The President can’t directly fire the Fed Chair without a valid cause, such as misconduct. The “for cause” provision in the Federal Reserve Act limits the President’s power to remove the Chair. This is intentional to maintain the Fed’s operational independence. However, the President can influence the Fed through appointments when terms expire and through public statements or persuasion, but not by direct removal.

The President of the United States cannot unilaterally fire the Chairman of the Federal Reserve before the end of their term, except under specific legal conditions. Here’s a structured breakdown:

1. Appointment Process:
   • The Fed Chair is nominated by the President and confirmed by the Senate for a 4-year term, which is renewable. The Chair also serves as a member of the Federal Reserve Board of Governors, who have 14-year terms.
2. Legal Framework:
   • The Federal Reserve Act allows the President to remove a Board member (including the Chair) only “for cause” (e.g., misconduct, neglect of duty). This does not include policy disagreements or political differences.
   • This provision ensures the Fed’s operational independence from short-term political pressures, safeguarding its role in managing monetary policy.
3. Historical Context:
   • Past presidents (e.g., Nixon with Arthur Burns, Reagan with Paul Volcker) have faced limitations in influencing Fed Chairs. While they could apply political pressure or decline reappointment, outright removal was not legally feasible without just cause.
   • Courts have historically upheld the Fed’s independence, reinforcing that “for cause” requires a high threshold, such as ethical violations or incapacity.
4. Practical Implications:
   • A President can indirectly influence the Fed by shaping its leadership through appointments (when terms expire) or public persuasion. However, abrupt removal to impose preferred policies would face legal challenges and undermine institutional credibility.

Conclusion

Trump is Looking at this as a Borrower & Not a Lender

The President lacks the authority to dismiss a sitting Fed Chair without demonstrating legitimate cause. This design protects the Federal Reserve’s independence, ensuring monetary policy decisions prioritize economic stability over political agendas. Interest rates decline in recessions and depressions BECAUSE people are not interested in borrowing when the future is uncertain. Rates rise during boom times naturally BECAUSE there is a demand for money.

Central Banks do NOT control the interest rate – THAT IS ANOTHER MYTH!!!!!!

There was a G4 in 1927 where Europe convinced the NY Fed to lower rates, hoping to reverse the capital inflows. That failed, and then the Fed started raising rates all the way into 1929, and it had no effect.

Then there was the 1985 Plaza Accord when James Baker thought that if the five main central banks banded together, they could intervene and control the currency markets. I warned President Reagan that it would result in a crash, which, because of the 1987 Crash, was caused by their currency manipulation.

The dollar had already turned down thanks to market forces. When the Plaza Accord announced that they wanted to lower the dollar by 40%, then the decline in the dollar was becoming critical so then they had the Louvre Accord in February 1987 and declared that the decline in the dollar had been enough. When the dollar continued to decline, the world woke up that the central banks could NOT control the free markets, and that resulted in the 1987 Crash, and foreign capital panicked, selling US assets, fearing another 40% decline.

If Trump gets Congress to remove Powell, then we will see a Financial Panic.