Pressure is mounting on Сhair of the Board of Governors of the Federal Reserve System, Jerome Powell, in the United States. On January 11, he issued a statement warning of the threat of criminal prosecution in connection with his testimony before the Senate Banking Committee regarding a long-term project to renovate historic Federal Reserve office buildings. However, it is clear that this pressure on Powell is coming from US President Donald Trump due to their differences on monetary policy. Powell hinted at this in his statement on the Fed's website: "These are the reasons. The threat of criminal prosecution is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, not based on the President's preferences."

The conflict between them has existed for a long time. Trump often tried to pressure Powell on this issue during his first presidency. Since the beginning of his second term, Trump has insisted on lowering the Federal Reserve's key rate, while Powell prefers a more cautious and slow approach. Trump argues that he wants to achieve greater economic growth through cheap credit, while Powell fears that this will fuel inflation (low inflation is one of the Fed's goals, along with ensuring the highest possible level of employment under current conditions). US GDP grew by 4.3% in the first three quarters of last year. At the same time, the Federal Reserve has made considerable progress in combating inflation, which stood at 2.7% year-on-year in December last year, but this is still above the long-term target of 2%. Very rapid GDP growth – 4.3% – for the world's largest economy can only be described as such, as it usually provokes an acceleration of inflation, so the Fed's actions to curb it should be assessed as professionally sound.

Once, a president who proposed an ambitious programme that included a significant strengthening of presidential powers won the US election. His decisions and a number of laws that were passed became the subject of consideration by the Supreme Court. Some were found to be unconstitutional, some were repealed, and some were approved. One member of the independent civil service did not support the president's policies, which initially prompted the president to demand the official's resignation. After two refusals, the president nevertheless dismissed the disloyal technocrat. The member of the independent government service did not comply with this decision and, despite his dismissal, continued to go to work. The fact is that the law allowed for his dismissal only in cases of obvious inefficiency, negligence or official misconduct. Political disagreement could not be such a reason.

That president was Franklin Delano Roosevelt. The dismissed technocrat was William Humphrey, who was a member of the Federal Trade Commission. The Supreme Court sided with Humphrey (although he had already died by that time, so the case is listed in the US Supreme Court's register of decisions as ‘Humphrey's Executor v. United States’), ruling that there is a difference between executive positions in the government and positions of members or heads of independent government agencies and commissions. The former are appointed purely at the discretion of the president and can therefore be dismissed for political reasons. The latter, although appointed by the president, are subject to rules and procedures regulated by specific laws or established by Congress, and can only be dismissed for specific reasons that do not include politics.

The case dates back to 1935. However, the US Supreme Court's decision on it became important in view of the independent status of a number of institutions that perform technocratic rather than political functions. Once appointed, the heads of such institutions must be isolated from political influence and act independently of the ‘wind direction’ of politicians' preferences. The Federal Reserve is one such institution.

For 90 years, the established rules were inviolable. Trump set out to change that. Upon coming to power, he dismissed several heads of such agencies and commissions without adequate reason (Trump's argument was quite Rooseveltian – they did not approve of the ‘president's policies’). The US Department of Justice supported Trump, stating that it would no longer defend the existing order and would ask the Supreme Court to review the 1935 decision. However, the Supreme Court did not issue a decision based on the Department of Justice's appeal.

Returning to the Federal Reserve, it should be noted that the procedure for appointing members to the Board of Governors of the Federal Reserve System is very specific. It consists of seven members who are appointed by the president and confirmed by the Senate for a term of 14 years without the right to reappointment (although it is possible to ‘serve out’ the term of a member of the Board of Governors of the Federal Reserve System who has not served it to the end, and there are precedents for this, for example, one of the most influential Fed chairmen, Alan Greenspan, headed the Fed for almost 19 years, from 1987 to 2006, having ‘served out’ part of the term of his predecessor, Paul Volcker).

Every two years, one seat on the Board is subject to change, ensuring smooth continuity. The Chair and Vice Chair of the Board of Governors of the Federal Reserve System may only be appointed from among those who are currently serving members of the Board. A member of the Federal Reserve Board may be appointed from among the current governors of the Federal Reserve Banks, of which there are twelve in the United States – this is the number into which the so-called ‘Federal Reserve districts’ are divided. At the same time, the representativeness of the Fed districts must be ensured: 7 out of 12 districts must be represented, and no district may be represented by two members on the Board. The Senate proposes the candidate to the President. After the President's approval, the Senate confirms the candidate.

In other words, in order to appoint ‘his man’ to the Fed Board, Trump needs to wait until the term of one of the Board members expires (the nearest expiry date is Powell's, in May this year). Then he can appoint his own person to the Fed's Board of Governors, and only after that will he have the opportunity to try to make him chair through agreements with the Senate. Procedurally, this is much more complicated than finding a MAGA man in some other US federal agency.

In the entire history of the Fed, no chairman has ever been dismissed before the end of his term. Trump is an unpredictable politician, but it seems that this will be difficult for him. However, it is not worth underestimating some of the current president's character traits.

I would like to believe that he is pragmatic enough to understand the risks involved in the most pressing issues. Most likely, Trump will limit himself to another verbal attack on Powell, reinforced by the threat of criminal proceedings, thereby increasing pressure on the Federal Reserve (after all, in his rhetoric, it is the Federal Reserve's unchanged interest rate that is the main cause of all current woes).

How will Powell respond? We won't have to wait long to find out — the next Fed meeting on the key rate will take place on 27-28 January.