Unprecedented! What kind of storm will be unleashed if Trump fires Powell?

According to the Zhitong Finance APP, U.S. President Donald Trump’s continued pressure on Jerome Powell has once again stirred the market, raising speculation about the situation if the beleaguered Federal Reserve Chairman were to be dismissed.

This move has no precedent in U.S. history and is almost certain to trigger a landmark lawsuit involving Washington and Wall Street, ultimately to be decided by the U.S. Supreme Court.

The latest turmoil on July 16 was sparked by media reports that Trump plans to take action against Powell. The Federal Reserve Chairman has long been targeted by Trump for ignoring his calls for interest rate cuts. Trump subsequently denied the reports, stating that the likelihood of Powell's dismissal is "extremely low, unless he must leave due to 'fraud'"—referring to the issue of cost overruns in the renovation of the Federal Reserve headquarters. Trump and his allies are focusing on this matter, attempting to use it as a "justifiable reason" to fire Powell. According to Section 10 of the Federal Reserve Act, members of the Federal Reserve Board (including the Chairman) can be removed for "just cause."

Whether the cost overruns constitute just cause for dismissal will become a new legal question.

What could happen if Trump fires Powell?

The dismissal would take immediate effect, but Powell could immediately sue in the Washington federal court and seek an injunction to reinstate himself. During the case proceedings, both parties will submit briefs, and Powell could argue that the dismissal lacks basis. The judge may hold a hearing to decide whether to issue the injunction, which will largely depend on Powell's ability to convince the judge that if the status quo is not maintained, he and the Federal Reserve will suffer "irreparable harm" during the litigation.

The ruling on the injunction is crucial, as the substantive hearing of the case could take months or even longer. If the injunction is denied, the dismissal takes immediate effect, and Vice Chairman Philip Jefferson will temporarily assume the role of Chairman (Jefferson was nominated by Biden in 2022, while Powell was nominated by Trump in 2017). If the injunction is granted, Powell could remain in office until the conclusion of the litigation, and either party could appeal, with the case potentially reviewed by the federal appeals court before ultimately being submitted to the Supreme Court.

The Supreme Court's ruling on the injunction is likely to set the tone for the case. Although the losing party can continue to litigate, the likelihood of the justices reversing themselves later is extremely low.

What could happen if the case is submitted to the Supreme Court?

The Supreme Court indicated in May that Trump cannot dismiss Powell without cause. While previously allowing Trump to dismiss officials from two other agencies without reason, a majority of justices clearly stated that this ruling does not apply to the Federal Reserve, describing it as a "structurally unique quasi-private entity." Nevertheless, this ruling still leaves open the possibility of dismissing Powell for "just cause," and Trump's favorable record in the Supreme Court (including last year's criminal immunity and several policy approvals) gives him an advantage.

Jed Shugerman, a presidential power expert at Boston University, noted, "They are paving the way for Trump." However, Jonathan Shaub, an expert on executive power at the University of Kentucky J. David Rosenberg College of Law, believes that even if the court rules the dismissal illegal, Powell's reinstatement remains uncertain—he presents two bases. First, the Supreme Court's June 27 ruling on birthright citizenship restrictions has narrowed the authority of judges to issue "equitable relief" orders (i.e., compelling parties to act or refrain from acting); second, Justice Neil Gorsuch suggested earlier this year that the court should not restore the positions of high-ranking officials What are the key points of contention in the case?

The core of the case will depend on the reasons for Trump's allegations. If Trump accuses Powell of mismanaging the renovation project with "just cause," the case may focus on project details and the accountability of those responsible for the budget overruns.

The legal definition of "just cause" typically includes three scenarios: inefficiency, neglect of duty, and misconduct. However, these terms proposed by Congress over a century ago still lack clear definitions today. The judge will need to determine, based on the arguments from both sides, whether Powell's role in the budget overruns constitutes any of these scenarios.

However, there are very few clear precedents. The Supreme Court has never heard a case regarding whether a president has sufficient "just cause" to dismiss an official.

Adam White, a scholar at the American Enterprise Institute, stated, "Such regulations have never been judicially tested, let alone in the context of the Federal Reserve." Columbia Law School lecturers Jane Manners and Lev Menand pointed out that "inefficiency" here refers to "administrative waste caused by incompetent officials," "misconduct" is "illegal actions that cause harm to others during the performance of duties," and "neglect of duty" means "failure to perform duties resulting in harm to others."

How to apply the "just cause" standard will be at the court's discretion.

What is the controversy surrounding the Federal Reserve's renovation project?

The Federal Reserve is undergoing its first major renovation of its two main buildings in Washington since their completion in the 1930s. The Federal Reserve stated that the project aims to reduce long-term costs by integrating operations.

After the renovation plan was approved by the Federal Reserve Board in 2017, the budget has continued to swell. According to the 2025 budget documents, the total estimated cost of the project has risen from $1.9 billion in 2023 to $2.5 billion. The Federal Reserve explained that the budget increase is mainly due to: design changes negotiated with reviewing agencies, discrepancies between estimated and actual costs, and unexpected situations such as the discovery of asbestos.

Several of Trump's allies are using the renovation issue to build a case for Powell's dismissal. Bill Pulte, director of the Federal Housing Finance Agency, accused Powell of making false statements about project details during the Senate hearing on June 25 (but did not provide specifics), claiming this constitutes "just cause" and calling for a congressional investigation. Federal Reserve officials stated that Powell's statements were accurate.

Russell Vought, director of the White House Office of Management and Budget, posted on July 10 that the project is a "wasteful renovation." Trump has claimed that Powell should be investigated for fraud related to the renovation. At Powell's request, the Federal Reserve's Inspector General has launched an investigation into the project's cost overruns.

If Powell were to resign, how long would it take for a new chair to take office?

The new chair must be nominated by Trump and confirmed by the Senate, a process that typically takes several weeks to months. During this time, the Federal Reserve Act stipulates that the vice chair "shall perform the duties of the chair in the absence of the chair."

What impact would Powell's dismissal have on interest rates?

Replacing the chair may not necessarily achieve Trump's demand for interest rate cuts—the rates are currently set by the Federal Open Market Committee (FOMC) chaired by Powell. The new chair would need to persuade the other 18 members (including 12 voting members) to support a rate cut How will the financial markets react?

Investors value the independence of the Federal Reserve. If that independence is compromised, the Fed's commitment to curbing inflation will lose credibility, and rising inflation expectations will severely impact financial asset prices.

Within 30 minutes of Bloomberg's report on Trump's potential firing of Powell, the S&P 500 index fell by 1%, the yield on 30-year U.S. Treasury bonds rose by 10 basis points, and the Bloomberg Dollar Spot Index dropped by 1.2%.

Bloomberg economist Anna Wong pointed out that if Trump really fires the Fed chairman, it will ultimately lead to slower economic growth, rising unemployment, and stubborn inflation