WASHINGTON -- The White House explored the legality of demoting Federal Reserve Chairman Jerome Powell in February, soon after President Donald Trump talked about firing him, according to people familiar with the matter.
The White House counsel's office weighed the legal implications of stripping Powell of his chairmanship and leaving him as a Fed governor, the people said, in what would be an unprecedented move. A replacement would have to be nominated by Trump and confirmed by the Senate.
Trump's team conducted the legal analysis and came to a conclusion that has remained closely held within the White House, the people said, requesting anonymity to discuss internal deliberations. It isn't clear whether Trump directed the legal review, and the people didn't describe the outcome.
A White House official who declined to be identified said he wouldn't comment on what he called alleged discussions from months ago. Trump's top economic adviser, Larry Kudlow, said demoting Powell isn't currently under consideration.
Fed spokeswoman Michelle Smith said in an email: "Under the law, a Federal Reserve Board chair can only be removed for cause."
Bloomberg News reported in December that Trump discussed firing Powell out of frustration over the central bank's interest rate increases.
While Trump still regularly expresses his displeasure with the Fed in tweets, talk of removing Powell has subsided. Trump told Powell in a March phone call, "I guess I'm stuck with you," according to The Wall Street Journal.
The Federal Reserve Act provides explicit protection for all Fed governors against removal by the president except "for cause." Courts have interpreted the phrase to require proof of some form of legal misconduct or neglect of basic duties. A disagreement over monetary policy wouldn't meet that bar.
However, it's less clear whether the president can demote a chair, removing him or her from the top position while leaving the person as a Fed governor.
Scott Alvarez, who served as the Fed's general counsel for more than a decade until 2017, said Powell may be protected thanks to changes Congress made to the law four decades ago.