Trump, Jay Powell and a Potential Fight over the Fed’s Future

A battle over the Fed’s future

Donald Trump’s threat to exert more say over the Fed or even fire Jay Powell, the chair of the central bank, has alarmed some on Wall Street. But the president-elect’s effort took on added weight in recent days, after Elon Musk endorsed a push to erode the Fed’s independence.

The fight shows how the future of the Fed could remain high on the agenda, and how far Musk’s influence — and the role of X as place for announcing policy positions — could extend across government.

The Fed has its foes. Senator Mike Lee, Republican of Utah, introduced a bill in June to abolish the central bank, accusing it of being an “economic manipulator that has directly contributed to the financial instability many Americans face today.”

Lee said on X that he wants to see the Fed under the president’s control — a view that Musk backed.

Powell could turn to the courts to challenge any White House attempt to exert more control, according to The Wall Street Journal’s Nick Timiraos. Trump appointed Powell in 2017 but flirted with removing him shortly afterward. Powell held onto his job, but was ready for a fight if Trump made a move, Timiraos writes:

Powell told then-Treasury Secretary Steven Mnuchin that he would fight his removal if sought by the president, according to people familiar with the matter. Trump was upset the Fed was raising interest rates against his wishes.

For Powell, the unsavory prospect of a legal showdown — one he might have to pay for out of his own pocket — was imperative to preserve the ability of future Fed chairs to serve without the threat of being removed over a policy dispute.

Powell has made it clear that the president doesn’t have the authority to remove a Fed chair. Last week, he said he wouldn’t step down if Trump asked him to do so after the central bank lowered borrowing costs by a quarter point. Removing him, he added, was “not permitted under the law.”

A 1977 law gave Congress more oversight of the Fed, but enshrined the institution’s independence on policy.

The central bank’s ability to set monetary policy without political influence is a core tenet for markets and the economy. The Fed also has an outsized influence through its freedom to buy and sell securities, like Treasury notes and bonds, as it looks to bring more liquidity to trading.