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Trial Balloons

It's quite possible Trump floated the idea of firing Powell as a trial balloon. It's also possible Trump's advisers floated the story on purpose in an attempt to block it before it happened.

I lean towards the latter.

Firmer Footing

Treasury Secretary Steven Mnuchin appears to have gotten Trump to back down from a very poor idea, firing Powell.

Can Trump Fire Powell?

Of course, all he has to do is say "Your'e fired". The question is what would happen next.

Former NY Fed president William Dudley says Powell Should ‘Protect’ Fed If Trump Ousts Him

William Dudley, former New York Fed president and FOMC vice chairman, said he doubts Trump would try to remove the Fed chief.

But if he did, and if sticking around the Fed is legally possible, “my advice to him -- I would stay on as a governor,” Dudley said in a phone interview. “You have to protect the institution.”

If he stayed, Powell’s colleagues could elect him as chairman for monetary policy, even if he were no longer head of the Fed Board, according to University of Pennsylvania Fed historian Peter Conti-Brown.

The above position suggests Trump could get rid of Powell as Chair but perhaps not remove him as a governor. It stems from Peter Conti-Brown who laid out a case that Trump could fire Powell for cause.

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Meaning of "For Cause"

This comes down to the meaning of the words "for cause".

I discussed Peter Conti-Brown's ideas in Trump Discusses Firing Fed Chair Jerome Powell: Can He? Sure!

Clearly, Trump can say "You're fired". What happens next is debatable. Here are some possibilities.

Possible Responses to "You're Fired"

  1. Powell resigns now before he is fired
  2. Powell is fired and leaves uncontested.
  3. Powell resigns or is fired as Chair but stays on as a Governor.
  4. Powell contests the firing.
  5. The entire Fed resigns in disgust.
  6. The entire Fed threatens to resign in disgust forcing Trump to back down.
  7. If Powell contests, he may or may not get a stay prohibiting his removal.
  8. The court might agree with Trump or Powell, if contested.
  9. The loser of a contested case may appeal to a higher court.
  10. Powell might win a contested case, then and only then resign.

The Unknowable

Some of those possibilities are extremely unlikely, notably the entire Fed resigning in disgust, but I bet the Fed discussed or will discuss that idea.

Point number 10 would be interesting. It would give us a definition of "for cause" in the context of firing a Fed Chair, and it would also get Powell out of what has to be a miserable job.

Some believe they "know" how a court would rule. They don't.

A legal scholar friend of mine just agreed that such things are not "knowable". He did however, place a belief that it was 80% likely Powell would win a contested case. No one really knows.

For now, this all seems moot.

Purposeful Leak

It appears that Trump's advisers purposely leaked the "firing" story hoping for the reaction that just happened: Trump backed down, for now.

Mike "Mish" Shedlock