The Trump camp’s tug o’ war over Fed Chair Jerome Powell’s future

One minute it seems like Donald Trump is ready to fire Jerome Powell, the next minute he isn’t.

But it’s not just the president who apparently can’t make up his mind on the future of the Federal Reserve chair – it’s his own staff, On The Money has learned.

People with direct knowledge of the matter tell me that the administration’s legal types and people inside the Treasury Department are divided over whether the president can pull the plug on Powell.

Recall, Powell’s term ends in 10 months, but Trump wants him gone closer to yesterday because he believes he’s too cautious in cutting rates. 

Under the law, Trump can fire Powell for what’s known as “cause.” What Trump’s inner circle is grappling with is what exactly constitutes “cause” in a way that can withstand legal scrutiny.

The “Fire Powell” lawyers believes the president has a wide berth to interpret the “for cause” clause in the Federal Reserve Act, the 1913 law that established the nation’s central bank as a semi-independent agency of government to control the money supply while maintaining price stability and full employment.

The president nominates the Fed chair for a four-year term, which requires Senate confirmation, but that term isn’t guaranteed if he steps out of line, this faction argues. Trump could simply say Powell is unqualified for the job, having missed the inflation spike in 2021 before raising interest rates, and then cut them during the run up to the 2024 election – allegedly to help his Democratic opponent Kamala Harris.

Trump could also argue that Powell is incompetent for not lowering interest rates now amid signs the economy is slowing and Trump’s tariffs haven’t led to a significant spike in inflation.

Not so fast, say “Keep Powell” proponents at the Treasury Department – including Treasury Secretary Scott Bessent. They believe “for cause” means a serious breach of ethical conduct or law, sources tell On The Money.

Not liking Powell’s interest rate policy doesn’t meet that standard, they argue. In fact, the Federal Reserve Act specifically preserves the Fed’s independence from the president, which is why there’s such a high “for cause” bar to meet before you can ax the fed chairman, they would add.

The $2.5 billion Fed office fiasco, as reported by The Post, with Powell accused by Trump allies of lying to Congress about the “Palace of Versailles” opulence of the project, gets you closer to “for cause.” But proving perjury as opposed to misspeaking or legalese is difficult. Plus, Powell wouldn’t be the first bureaucrat to go over budget.

If Trump did pull the trigger, the Treasury peeps are arguing, it would create a messy legal battle between Powell and the president. The Fed chair could refuse to leave, arguing that the cause bar hasn’t been met, likely pulling the Supreme Court into the fracas. Given the way the act is written, it’s unclear if even a largely Trump-appointed court would side with the president.

The conservative majority might not want to upset years of precedent involving the Fed chair’s independence, so better to let Powell serve out his term until it ends next May (he could stay on the Board of Governors until 2028).

So far, it’s the Bessent faction that is winning. Trump said Wednesday he has “no plans” to fire Powell after reports surfaced that his days are numbered. But the president added a caveat: “Unless he has to leave for fraud.” 

Coincidentally, it’s Bessent who oversees vetting candidates for Powell’s replacement as interest rate policy becomes a growing concern for the Treasury Secretary. 

Because the Big Beautiful Bill doesn’t cut the deficit in the near term, Bessent must keep issuing lots of debt. He’s borrowing a page from his predecessor, Janet Yellen, by rolling over short term debt so he doesn’t cause a spike in interest rates on 10-year bonds, where consumer rates are priced (bond prices move in opposite direction from interest rates; you get higher rates when you issue more bonds).

Considering all the above, maybe Bessent changes his tune and falls into the “Fire Powell” camp for an interest-rate dove. It will make his debt-management job a hell of a lot easier.

A White House spokesman and spokeswoman for Bessent had no immediate comment.