Powell Brushes Off Trump's Removal Threat: Economists Say 2026 Could Be His Last Stand

The re-election of Donald Trump has reignited one of the most contentious debates among investors: Can the president-elect remove Federal Reserve Chair Jerome Powell?

Trump has been critical of Powell's handling of interest rates since appointing him in 2018, and many have speculated that a Trump-led White House may clash with the central bank yet again.

But Powell didn't mince words during his press conference following the Fed’s November interest-rate cut, stating firmly that a U.S. president “is not permitted under the law” to remove the central bank governor. Powell also added that he would refuse to step down if Trump requested him to do so.

Legal safeguards protect the Fed chair (mostly)

While the Federal Reserve Act technically shields the Fed’s chair from presidential removal, there are also some caveats.

Under Section 10 of the Act, a Fed chair can only be dismissed by the president in cases of legal or ethical violations—not simply due to policy disagreements. This structure is designed to keep monetary policy free from short-term political interference.

However, Trump could choose not to reappoint Powell once his term expires in 2026, potentially replacing him with someone more aligned with his low-rate preferences.

As Bill Adams, chief economist at Comerica Bank, commented, "After Fed Chair Powell's term expires in 2026, President-elect Trump will have an opening to appoint a new Fed chair who is more sympathetic to his calls for lower interest rates."

Adams indicates that Trump will likely push the Fed to cut interest rates more aggressively, as he did in his first term.

However, he highlights that this pressure is unlikely to impact the Fed's rate path over the next year, given the central bank’s structure, which is designed to shield rate decisions from White House influence.

Powell used his press conference not only to clarify the Fed's rate strategy, but to also reassert its independence.

BNP Paribas economist Anis Bensaidani said, “For Chair Powell, the post-meeting press conference was an opportunity for a twofold statement of the Fed's independence.”

Bensaidani noted that Powell's refusal to resign at Trump's potential request underscored the Fed's autonomy from the executive branch, a message he amplified by referencing legal safeguards against unwarranted dismissal.

Yet, Powell also sidestepped questions on how the Fed would respond to the new administration's potential policy shifts, stating that the Fed would "only model any policy changes after they have been passed" and decide on a response later.

This careful approach seems aimed at avoiding the perception that the Fed is preemptively aligning with any political agenda.

Powell’s Dovish Tone Raises Eyebrows

However, Powell’s recent remarks struck a dovish tone, leaving economists divided on the Fed's rate trajectory.

“Although he stressed data dependence as expected, he gave several indications that a December cut remains his base case,” Bank of America economist Aditya Bhave said in a note Friday.

This dovish outlook has some analysts predicting further rate reductions over the coming months, even as the economy and labor market show resilience.

Goldman Sachs economist David Mericle foresees "consecutive cuts in December, January, and March," with additional reductions in June and September to reach a terminal federal funds rate of 3.25% to 3.5%.

According to Mericle, "Powell said twice that the labor market is continuing to cool, and the FOMC does not want further cooling."

Some economists question whether more easing is justified.

Veteran Wall Street analyst Ed Yardeni, stated that 75-basis-point of rate cuts since Sept.18 “is too much, too soon because both the economy and the labor market remain strong.”

Yardeni added that Powell himself acknowledged the economy’s strength, commenting that "both remain solid." Yet, Powell insists the Fed's policy remains restrictive, as rates are still above the so-called "neutral" level.

Yardeni also questioned the urgency of the cut: "One might question why an additional rate cut was needed if the economy is in fact in better shape today than it was at the Fed’s last meeting."

Powell also attributed recent jumps in Treasury yields—up 75 basis points since the last rate cut—to robust economic growth and lower recession risks.

“He minimized the impact of higher inflation expectations. But the market’s inflation expectations, based on the difference between nominal Treasury yields and TIPS yields, have risen,” Yardeni stated.

The 5-year breakeven inflation rate—a closely watched market indicator reflecting investor expectations for average annual inflation over the next five years—has climbed from 1.98% on Sept. 8 to 2.4% on Nov. 8.

This surge suggests that investors increasingly doubt the Federal Reserve's ability to keep inflation at its 2% target over the coming five years.

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Image created using artificial intelligence via Midjourney.

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