On July 16, U.S. President Trump and Federal Reserve Chairman Powell clashed again.

There are reports that Trump is expected to take action against Powell soon, and he has been consulting within the Republican Party on the possibility of replacing the Federal Reserve chairman.The difference between the two lies in interest rate cuts. Trump has always called on Powell to cut interest rates on the grounds of good inflation data, but the latter remains unmoved.

Later, Trump refuted the reports, saying Powell was "extremely unlikely to be ousted," but he also pointed out ambiguously,"unless Powell was forced to leave because of fraud."

Powell's "fraud" refers to the cost overrun of the Federal Reserve headquarters renovation project.Since Trump came to power, he and his allies have used this as a potential reason to fire Powell for "some reason."

According to Section 10 of the Federal Reserve Act, the law governing the Federal Reserve, members of the Federal Reserve Board of Governors (of whom Powell is a member) can be removed from office "for any reason."But from the perspective of cost overruns, accusing members of the Federal Reserve Board of Governors of committing "fraud" has never happened in U.S. history.If the trial does start, judges in the United States will face a rather thorny new problem.

Hawk Insight brings you an article on the context and consequences of Trump's attempt to fire Powell.

First, is there any fraud in the Federal Reserve Building renovation project?

The Federal Reserve is currently undergoing the first major renovation of its two main buildings in Washington since they were built in the 1930s, a renovation plan originally approved by the Federal Reserve Board of Governors in 2017.Since then, its costs have continued to rise.According to the Federal Reserve's 2025 budget document, the project's total cost estimate has risen to $2.5 billion, compared with just $1.9 billion in 2023.

Experts believe that the main reasons for the increase in estimated costs are design changes after consultation with the review body, differences between estimated costs and actual costs, and unforeseen circumstances such as the discovery of asbestos quantities exceeding expectations.

But this rhetoric does not satisfy Republicans.Some Trump allies seized the renovation and blasted Powell.

Bil Pulte, director of the Federal Housing Finance Administration, accused Powell of lying about specific details of the project at a June 25 Senate hearing, but provided no details.Purte insisted that this would lead to Powell's "well-founded" dismissal and called on Congress to investigate.Russell Vought, director of the White House Office of Management and Budget, said in a social media post on July 11 that the renovation was "a pompous makeover."

Trump also said Powell should be investigated for fraud related to the renovation project.

Currently, at Powell's request, the Federal Reserve Inspector General has launched an investigation into the increased cost of the project.

Second, if Trump fires Powell, what might happen next?

In short, Powell will not be completely passive.

Although the dismissal will take effect immediately, Powell could immediately file a lawsuit (most likely in federal court in Washington) and request an injunction to reinstate him while the lawsuit proceeds.Both sides will submit briefings outlining their arguments, giving Powell the opportunity to describe his firing as unreasonable.

The judge may hold a hearing before ruling on the injunction, and the outcome may depend on whether Powell can persuade the judge.If Powell's reasons do not convince the judge, then both Powell himself and the Federal Reserve will suffer "irreparable damage" during the injunction ruling.

The injunction ruling is crucial because it is not only a lifeline for Powell to use the judicial system to refute the U.S. president, but also a royal sword for him to gain a breath-because it may take months or even longer for the judge to make a ruling on the essence of the case. During this period, Powell may still use the time gap to find an alternative way to reverse the situation.

If the ban is approved, Powell could remain in office while the case is heard.Either party can appeal, which means a federal appeals court jury will intervene and may later appeal to the Supreme Court.The Supreme Court's ruling on the injunction is highly likely to resolve the case because it symbolizes maximum validity.When the Supreme Court makes a decision, even if the losing party can continue to sue, there is little chance that the judges will effectively overturn the original judgment in the future.

Of course, if Powell's injunction request is denied, his dismissal will remain in effect.

In such a case, the Vice Chairman of the Federal Reserve will serve as chairman.Currently, the position of vice chairman is held by Philip Jefferson.Jefferson was nominated by then-President Joe Biden as a governor of the Federal Reserve in 2022.Powell was nominated by Trump as chairman in 2017, when Trump was in his first term as president.

As for the new permanent chairman, this requires nomination by Trump and Senate approval, a process that usually takes weeks or even months.During this period, the Federal Reserve Act stipulates that vice chairmen "shall perform their duties in the absence of the chairman."

Third, what impact will Powell's dismissal have on the economy?

interest rate

Although Trump fired Powell to cut interest rates, removing the Federal Reserve chairman will not necessarily resolve the main contradiction between Trump and the Federal Reserve, because the decision to cut interest rates cannot be achieved by a new chairman alone.

In terms of rules, the Federal Reserve interest rate is jointly set by the Federal Open Market Committee (FOMC), and Powell is only the leader of the FOMC.The FOMC also has the right to elect its own chairman, although the position is usually held by the chairman of the Federal Reserve.But legally, any of the other 18 decision makers on the committee can serve as chairman of the Federal Reserve.

There are a total of 19 members on the FOMC Committee (including the Chairman of the Federal Reserve). All 19 members can participate in the FOMC interest-rate meeting, but only 12 of them have voting rights-which means that if the new Federal Reserve needs to cut interest rates, then he must win the support of other members and put forward appropriate reasons for rate cuts.

financial markets

Investors attach great importance to the Federal Reserve's status as an independent institution.

Without independence, the Fed's commitment to control inflation lacks credibility.Expectations of rising inflation could significantly change the prices of financial assets.

Within 30 minutes of media reports that Trump might fire Powell, the S & P 500 index fell 1%, the 30-year Treasury yield rose 10 basis points, and the Bloomberg Dollar Spot Index fell 1.2%.

Anna Wong of Bloomberg Economics said that if Trump really takes action to fire the Federal Reserve chairman, it will eventually lead to slowing economic growth, rising unemployment, and persistent inflation.