Legal risks: Trump is getting the weakened dollar he wants. Does he have cause for removing Powell?

12 USC Sec. 242 says the following about the eligibility, selection, and removal of a member of the Board of Governors of the Federal Reserve. Hold tight. It’s a mouthful:

“The members of the Board shall be ineligible during the time they are in office and for two years thereafter to hold any office, position, or employment in any member bank, except that this restriction shall not apply to a member who has served the full term for which he was appointed. Upon the expiration of the term of any appointive member of the Federal Reserve Board in office on August 23, 1935, the President shall fix the term of the successor to such member at not to exceed fourteen years, as designated by the President at the time of nomination, but in such manner as to provide for the expiration of the term of not more than one member in any two-year period, and thereafter each member shall hold office for a term of fourteen years from the expiration of the term of his predecessor, unless sooner removed for cause by the President.

Of the persons thus appointed, 1 shall be designated by the President, by and with the advice and consent of the Senate, to serve as Chairman of the Board for a term of 4 years, and 2 shall be designated by the President, by and with the advice and consent of the Senate, to serve as Vice Chairmen of the Board, each for a term of 4 years, 1 of whom shall serve in the absence of the Chairman, as provided in section 244 of this title, and 1 of whom shall be designated Vice Chairman for Supervision.

The Vice Chairman for Supervision shall develop policy recommendations for the Board regarding supervision and regulation of depository institution holding companies and other financial firms supervised by the Board, and shall oversee the supervision and regulation of such firms.

The Chairman of the Board, subject to its supervision, shall be its active executive officer. Each member of the Board shall within fifteen days after notice of appointment make and subscribe to the oath of office. Upon the expiration of their terms of office, members of the Board shall continue to serve until their successors are appointed and have qualified. Any person appointed as a member of the Board after August 23, 1935, shall not be eligible for reappointment as such member after he shall have served a full term of fourteen years.”

Whew. Sorry about that, but I wanted to provide as full a context as possible.

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The markets recently have been trying to factor in potential threats to the political independence of the Board of Governors of the Federal Reserve System as it pertains to any attempts on the part of President Trump to remove Jerome Powell from the Board’s chairmanship. Chairman Powell has repeated on several occasions that he plans to serve out his four-year term as chairman and sees no legal grounds for the President’s attempts to remove him as chairman.

Per my reading of 12 USC Sec. 242, I see no discussion specific to the removal of a chairman of the Board of Governors. Removal under the statute pertains to removal of a Board member for cause. At first glance, if President Trump wants to remove Mr. Powell from the chairmanship, he would have to show cause as to why Mr. Powell should not be a member of the Board.

12 USC Sec. 242 does not spell out specific examples of cause such as neglect of duty, serious misconduct, incapacity, malfeasance in office, etc.

Mr. Trump has often pointed out that his main beef with Mr. Powell is that he has left the federal funds rate too high. But the decision on the federal funds rate target range, the discount window (prime) rate, and the rate for interest paid on reserve balances is made by vote during meetings of the Federal Open Market Committee. 12 USC Sec. 263 implies that the Chairman of the Board of Governors also chairs this committee since it is the Board chairman who calls the FOMC together.

It all comes back to showing cause if Mr. Trump wants to remove Mr. Powell. But any such attempt may create a political problem for Mr. Trump. Given uncertainty around the level of inflation his tariff policy may introduce into the economy and given the uneasy ceasefire he brokered between Israel and Iran after backtracking on a promise of no US involvement in any more wars, does Mr. Trump have the political capital with which to weather another economic policy headache.

There is the potential for legal challenges to any attempt by the President to remove the Chairman. These legal challenges will occur during a period where Wall Street expects anywhere from 63 to 137 basis-points worth of cuts to the fed funds rate over the next nine months with an accompanying slowdown in the economy.

And when it comes to the issue of cause, is not the President getting what he wants in terms of weakness in the US dollar? Mr. Trump has been calling for a weakened US dollar, one that would incentivize the purchase of US made goods. Since 6 January 2025, the EUR/USD has gone from 1.0391 to my latest reading today of 1.1701.

Under Chairman Powell’s watch, President Trump may be getting what he has been asking for. Mr. Trump may want to take pause before climbing an insurmountable hill of showing cause.

Alton Drew

26 June 2025

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