Trump Vs the Fed: Why is Everyone talking about “Humphrey’s Executor Case”?

Published on 20.05.2025

Tensions are escalating between President Trump and Federal Reserve Chair Jerome Powell.

For months, Trump has been calling on the Feds to cut interest rates. His motive? Lower interest rates could help boost the economy and offset some of the impact of the tariff policies. Powell, however, remains cautious, emphasizing the need for more clarity on how tariffs are really affecting the broader economy.

This ongoing clash is now feeding into a larger constitutional debate. A historic precedent, Humphrey’s Executor v. United States (1935) is back in the spotlight as a new Supreme Court case could redefine the boundaries of presidential authority over independent agencies like the Fed.

What Is Humphrey’s Executor Case?

The Humphrey’s Executor v. United States (1935) Supreme Court decision established that U.S. presidents cannot remove leaders of independent federal agencies simply because of policy disagreements. The Court ruled that such agencies operate outside the president’s direct control to preserve their political independence and ensure a balance of power. This precedent has long protected the autonomy of institutions like the Federal Reserve.

In Powell’s case it means he can’t be dismissed before his term ends in 2026. However, Trump has already challenged those limits by removing other independent board members this year, prompting a new Supreme Court review that could redefine or weaken the protections set by Humphrey’s Executor.

Markets, Politics, & the Battle for Fed Independence

The Supreme Court is weighing a case that could significantly impact the Federal Reserve’s independence. If the court sides with Trump, The Feds (and other agencies which are meant to stay above politics) could fall under direct political control. This raises major concerns for investors, particularly regarding volatility if the interest rates become just another political tool.

At the same time, Powell has provided little reassurance, making it clear that the idea of the Fed stepping in to cut rates to save the markets is no longer on the table. Investors are reflecting on this sentiment, with an 85% probability that interest rates will remain unchanged in the Fed’s next meeting. While the Fed holds steady, Europe is pursuing a different path.

The European Central Bank (ECB) has cut rates for the 7th time, creating a widening gap in policy between the Fed and the ECB. This growing gap raises concerns about the Fed’s ability to remain independent amid rising political pressures.

For traders, this means greater uncertainty. Political pressures on the Fed could lead to unpredictable movements in the U.S. dollar, equity markets, and bond yields. Traders should keep a close eye on these developments, as they could result in opportunities or risks in forex and broader financial markets.

Conclusion: The Future of US Monetary Independence

At its core, this is not just about a policy clash between Trump and Powell. It’s about preserving the integrity of institutional independence of the U.S. Federal Reserve’s institutional independence, a foundation of economic credibility and financial stability.

If the Federal Reserve loses its autonomy, political risk could start driving market reactions more than ever before. That could undermine the U.S. dollar, destabilize bond markets, and send shockwaves through global asset classes. A breakdown in trust could also reignite concerns seen in April 2025, when fears of political interference triggered a sharp selloff in U.S. equities, bonds, and the dollar.

For now, the Fed remains independent. The decisions made in the coming months could redefine that independence and global confidence in U.S. financial leadership for a generation. It remains to be seen how the Court’s decision, coupled with growing political pressures, will shape the Fed’s role and its influence on the global market.