President Donald Trump has made no secret of his disdain for Federal Reserve (Fed) Chair Jerome Powell. After appointing him in 2018, Trump outspokenly criticized Powell’s decision to raise interest rates in the Fed’s fight against inflation. In his second term, Trump called on the chairman to resign over his refusal to slash rates and even flirted with the idea of firing him multiple times.
Now, it appears the president is even closer to removing Powell than before: Trump’s Department of Justice threatened Powell with a criminal indictment on baseless grounds, an unprecedented escalation of his attacks, on Jan. 9. Beyond its blatantly authoritarian nature, firing Powell would be the single most destructive thing Trump has done to the American economy.
The chief problem with firing Powell over a policy disagreement is that it undermines the Fed’s independence. When the Fed was established in 1913, it was granted full authority over monetary policy decisions. Its seven-member board of governors was to be appointed by the president and serve in staggered 14-year terms, so as to not allow court-packing.
The intention behind this design was clear: no other branch of government should influence the Fed’s decisions or leadership, especially not because of policy disputes or to gain more political control. Therefore, ousting Powell without just cause and replacing him with a loyalist — Trump reportedly has former Fed governor Kevin Warsh in mind — would shatter any appearance of independence.
A non-independent Fed would spell doom for the American financial system. According to decades of research, central bank independence is crucial for maintaining a nation’s economic well-being; countries without independent central banks undergo “higher inflation, higher interest rates, and can also have more economic instability” on average, economist Jason Furman said.
Take Turkey, whose central bank faced political pressure to lower rates from Turkish President Recep Tayyip Erdoğan, much like what Trump is doing now. Over time, the low rates resulted in a weakened currency and inflation, and subsequent corrective measures by Turkey’s central bankers couldn’t sufficiently fix these problems. That was because they lacked the autonomy to raise rates when it was necessary, forcing them to find convoluted solutions that ultimately didn’t work. If Trump goes through with removing Powell as a means of lowering interest rates, the U.S. would be set on a similar track, and this change would be utterly destructive for the American economy.
In 2025, Trump enacted a series of tariffs on most imported goods that were economically devastating for American consumers and businesses alike. While the damage done by Trump’s tariffs cannot be understated, the effects of removing Powell would be far worse and long-lasting. However bad they might be, Trump’s tariffs essentially only have the political shelf life of his current administration. In 2029, a Democratic administration could easily repeal them with an executive order on day one — assuming there isn’t a repeat of 2021.
On the other hand, it won’t be so easy to rebuild credibility in the Federal Reserve. Even if the next president appoints a competent, independent chairperson, history has shown us that there will be lasting economic damage. In Turkey, where Erdogan reversed course to a traditional central bank policy in 2023, economists argue that “the normalisation of its financial system will take time” to occur.
The prospect of Trump firing the chair of the Fed is a daunting one, especially for the American economy, where it has the potential to be his most destructive mistake yet. If Trump proceeds with this course of action, it wouldn’t just result in a devalued dollar and lingering inflation. It would represent the U.S. embracing the tendencies of a banana republic — a corrupt, economically unstable nation vulnerable to exploitation.
Dragan Kupenov is an Opinion Intern for the spring 2025 quarter. He can be reached at dkupenov@uci.edu.
Edited by Casey Mendoza and Joshua Gonzales