Investing.com - When pressed last week to say if he would resign if asked to by incoming US President Donald Trump, Federal Reserve Chair Jerome Powell was curt in his reply.
"No."
He reiterated the sentiment when reporters raised questions around whether Trump had the authority to remove him from the role. Powell, who holds a law degree and was nominated by Trump to helm the Fed in 2017, said the move was not legally permitted.
The statements suggested that Powell would likely lodge a legal challenge to any attempt to oust him prior to the end of his term in 2026, according to the Wall Street Journal.
Crucially, the paper noted Powell and other senior Fed officials have avoided saying anything potentially provocative about either Trump or his election victory.
In 2018, when then-President Trump was considering dismissing Powell over the Fed's decision to raise interest rates against his wishes, officials at the central bank were readying a legal challenge aimed at protecting its independence, the WSJ reported.
For Powell, such a showdown would be an imperative to ensure that future Fed chairs cannot be tossed out due to policy disagreements with the White House, the WSJ said.
Trump has not recently indicated any plans to try to force out Powell, saying in June that he would allow the Fed chair to serve out the remainder of his term "especially if I thought he was doing the right thing."
The president-elect's advisers, meanwhile, are split on how far he should go on the matter, the WSJ reported.
Bringing forth immediate changes at the Fed will likely be more complicated for Trump than in his previous four-year tenure in the White House, particularly as the institution does not have an open spot on its seven-person board. In his prior term, he filled five vacancies within his first year in office.
Meanwhile, any changes at the Fed may threaten to disrupt an ongoing bid by policymakers to defeat inflation without sparking a meltdown in the wider economy or labor demand. Last week, the Fed slashed rates by 25 basis points and said activity remains on a "solid pace," although markets remain uncertain about the timing of future reductions.
Some analysts have speculated that Trump's proposed policy changes, especially a blanket tariff on US imports, could drive up inflation and lead the Fed to leave rates at a higher level than initially anticipated. This uptick in volatility may exacerbate the possibility of a clash between the Fed and the new Trump administration, the WSJ said.