By Nick Timiraos 

President Trump stepped up his attacks on the Federal Reserve this week, but said he wouldn't fire central bank Chairman Jerome Powell, leaving some observers wondering whether that is even an option. Here are some questions and answers:

Can the president fire the Fed chairman?

The law is somewhat vague on this question. The Federal Reserve Act, as amended in 1935, says Fed governors can be removed by the president "for cause."

Does a dispute over policy satisfy the "for cause" threshold?

"Cause" isn't defined in the statute, but it has been interpreted in other cases as meaning "inefficiency, neglect of duty or malfeasance in office," said Peter Conti-Brown, a University of Pennsylvania professor who has written a history of Fed independence.

Have presidents in the past tried to remove the Fed chairman?

After a fight with Fed Chairman William McChesney Martin in 1965, President Lyndon Johnson asked the Justice Department if he could remove a Fed board governor. His lawyers advised him that disagreement with policies didn't amount to valid "cause" for dismissal, according to Robert P. Bremner's biography of Mr. Martin.

How have courts interpreted the "for cause" standard in other presidential dismissals?

The legal standard of "for cause" dates back to the New Deal, when President Franklin D. Roosevelt tried to fire William Humphrey from the Federal Trade Commission for not aggressively championing his policies. Mr. Humphrey kept coming to work anyway.

The case ended up before the Supreme Court. Mr. Humphrey died before it was decided, and the executors of his estate continued the case. The court ruled against the White House and distinguished between executive officers, who can be fired for any reason, and quasi-legislative officials, such as an FTC commissioner -- or, presumably, a Fed chairman -- who could be removed only for certain reasons laid out by Congress.

Have courts suggested any limits on those restrictions?

Yes. Consider a decision by a federal appeals court this past January that upheld the constitutionality of the Consumer Financial Protection Bureau. In joining the majority, Judge Thomas Griffith, an appointee of President George W. Bush, said Mr. Humphrey's executor provided "only a minimal restriction on the president's removal power" that would permit such a dismissal simply for "ineffective policy choices."

The law says Fed governors can be removed for cause. Does this apply to the chairman?

Further muddying the waters, the Federal Reserve Act's "for cause" stipulation only applies to the governors, who serve 14-year terms, and not to the Fed chairman, who serves a four-year term concurrent with a 14-year term as governor.

A key question, then, is whether a court would provide the same "for cause" standard to the chairman as exists for the governors, in addition to the question of what behavior, exactly, justifies a "for cause" termination.

Why is the question coming up now?

The question arose this week after Mr. Trump called the Fed's interest rate increases "crazy," "loco" and "out of control." When asked Thursday during an Oval Office bill signing event if he would fire Mr. Powell, Mr. Trump said, "No, I'm not going to fire him. I'm just disappointed."

How have markets reacted?

Markets have largely shrugged off Mr. Trump's latest Fed criticisms because investors expect central bank officials to do the same, and they don't appear worried he would remove Mr. Powell.

If Mr. Trump decided to replace Mr. Powell with someone else currently on the Fed's board of governors, it is very unlikely that any of the other three members (or three additional nominees awaiting Senate confirmation) would take monetary policy in a direction more suited to Mr. Trump's desire for lower rates.

If a president were upset enough to consider dismissing the Fed chairman, markets could become significantly concerned at the escalating threats on the central bank's independence to cancel whatever benefit a president might seek by replacing the chairman.

If the president can't fire the Fed chairman, then what's the big deal?

Even if Mr. Trump isn't contemplating such action, sustained criticism of the Fed that turns a chunk of the public against the central bank could be damaging on its own.

"The Fed isn't powerless in this pas de deux, but it isn't a fair fight, " said Mr. Conti-Brown. "The Fed loses even by winning because it loses by engaging at all."

Write to Nick Timiraos at nick.timiraos@wsj.com

(END) Dow Jones Newswires

October 12, 2018 12:22 ET (16:22 GMT)