Volkswacht Bodensee - What to know about Trump's effort to oust Fed Chair Powell

The US leader's focus on the Fed's $2.5 billion renovation project comes after months of growing criticism targeting the independent central bank chief -- as the bank held interest rates steady despite Trump's insistence that it should slash them.

After calling Powell a "numbskull" and "moron" for the Fed's policy decisions, Trump on Tuesday suggested the renovation costs could be a potential avenue for his removal.

Here is what you need to know about the latest developments:

- Can Trump oust Powell? -

Should Trump make the unprecedented move of firing Powell, a sitting Fed chair, he would need to identify a reason for removal recognized by law -- and produce evidence to back up his case, experts said.

Some statutes note that an official can be removed for neglect of duty or malfeasance, and other causes include "inefficiency," said Columbia Law School associate professor Lev Menand.

But the president would have to show that there was mismanagement on Powell's part.

"Right now, there's no evidence that the White House has released publicly or pointed to, that there was any sign of mismanagement in connection with this renovation," Menand told AFP.

While costs for the Fed's project have gone up, Menand noted that construction materials have become more expensive in the post-pandemic economy. And renovating historic buildings in the nation's capital is a pricey affair.

"Based on publicly available information, there's just no grounds for removing Powell 'for cause'," Menand said.

"For cause" could be interpreted to mean wrongdoing.

If the president proceeded, Powell would have to be notified of the charges and be allowed to contest them, he added. The Fed chair can remain in place through this time.

- What are the accusations? -

Trump for months has lashed out at the Fed for holding interest rates steady since the start of the year, while repeatedly pushing for lower borrowing costs.

He charges that the central bank could help save the country debt-servicing costs by cutting rates from the current range, which is between 4.25 percent and 4.50 percent.

The president also pointed to relatively tame inflation figures to make the case for reducing rates.

But the Trump administration has recently honed in on the Fed's building works as a possible reason to drive out Powell.

On Wednesday, the president said: "It's possible there's fraud involved with the $2.5, $2.7 billion renovation."

In response to White House budget chief Russell Vought's concerns on the renovations, Powell said in a letter Thursday that he has asked the Fed's independent inspector general to hold a fresh review of the project.

He stressed that there were no VIP dining rooms or private elevators being constructed, while adding that both buildings involved "were in need of significant structural repairs."

- What are the consequences? -

"Equities would likely sell off on impact, on a risk-off flight to safety trade," said Padhraic Garvey, regional head of research for the Americas at financial institution ING.

"After all, this would be an effective forced exit of a reputable Fed chair by the US president, an unprecedented event for the market to get its head around," he told AFP.

But equities could quickly reassess and rally on the theory that "the Fed will be cutting deep into rates," boosting the economy, he added.

It is unclear however that Trump would easily achieve a goal of lowering interest rates quickly even if he ousted Powell, given that the Fed's rate-setting committee comprises of 12 voting members.

Garvey expects that other committee members would continue basing policy decisions off their individual assessments of the economy -- balancing inflation and labor market risks.

The dollar could also come under pressure, he noted.

"For now Fed credibility is intact, and will remain so for at least as long as Chair Powell remains in place," he said.

A.Kunz--VB