President Trump is threatening to fire Fed Chair Jerome Powell. Let’s recap how we got to this point.
“Fed a Bigger Problem than China”
On November 27, in a WSJ interview, Trump stated that the Fed is a Bigger Problem than China.
President Trump: Well, let’s see what happens with Jay Powell. So far, I can tell you – I said it the other day, and I’ll say it again: I think the Fed right now is a much bigger problem than China. I think it’s – I think it’s incorrect what they’re doing. I don’t like what they’re doing. I don’t like the $50 billion. I don’t like what they’re doing in terms of interest rates. And they’re not being accommodative at all. And I’m doing trade deals, and they’re great trade deals, but the Fed is not helping. Whereas, China, you know, they have automatic accommodation.
Far Too Aggressive
On December 11, Trump said Powell was “being too aggressive, far too aggressive, actually far too aggressive.” He told Reuters the central bank “would be foolish” to proceed with a rate hike.
Immediately ahead of the Fed’s last rate hike, president Trump fired off a pair of Tweets.
The “50 B’s” is likely a reference to the Fed’s policy of reducing its balance sheet by a maximum of $50 billion each month.
Fed Hiked
On December 19, the Fed hiked rates. On top of the hike, Powell reiterated that quantitative tightening of the balance sheet would continue on automatic pilot.
Subsequent market declines put trump over the edge
Trump Threatens to Fire Powell
Bloomberg article Trump Discusses Firing Fed’s Powell After Latest Rate Hike has created quite a stir. Nearly every other news agency copied it or quoted it.
President Donald Trump has discussed firing Federal Reserve Chairman Jerome Powell as his frustration with the central bank chief intensified following this week’s interest-rate hike and months of stock-market losses, according to four people familiar with the matter.
Advisers close to Trump aren’t convinced he would move against Powell and are hoping that the president’s latest bout of anger will dissipate over the holidays, the people said on condition of anonymity. Some of Trump’s advisers have warned him that firing Powell would be a disastrous move.
Yet the president has talked privately about firing Powell many times in the past few days, said two of the people.
Can Trump Fire Powell?
Sure.
Members of the Fed’s Board of Governors “are appointed for a 14-year term and may be removed from office by the President only ‘for cause.’
People can make assumptions that “cause” means gross negligence but since it was not defined, it could also mean “lack of faith”. Trump clearly has a lack of faith in Powell.
Others note that the Chair is different. It isn’t The head of the Fed is also a Governor, and Governors can be removed for “cause”.
It’s a Political Question
The Justice Department told LBJ in 1965 he didn’t have that power, but the law has since evolved.
The Wall Street Journal has an excellent discussion of the matter entitled It’s a Political Question.
last month Mr. Trump told the Journal: “Let’s see what happens with Jay Powell.” Can he raise the stakes by forcing the chairman out? He isn’t the first president to ask the question. More than 50 years ago, Lyndon B. Johnson had a similar conflict with Chairman William McChesney Martin. No, Deputy Attorney General Ramsey Clark answered in a memo.
That sounds like good news for Mr. Powell. Unfortunately for him, a lot has changed. For one thing, the Supreme Court has repeatedly limited Congress’s ability to restrict presidential control of independent agencies. In Free Enterprise Fund v. Public Company Accounting Oversight Board (2010), for example, Chief Justice John Roberts wrote for the court that “the President cannot ‘take Care that the Laws be faithfully executed if he cannot oversee the faithfulness of the officers who execute them.”
Further, the lawyers were probably wrong in 1965 about the implications of the chairman’s four-year term. In 1976 Congress passed a law establishing a 10-year term for the director of the Federal Bureau of Investigation. As with the Fed chairman, that statute does not expressly prohibit the president from removing the FBI director at will. Under the Justice Department’s logic in 1965, it would follow that the president lacks the authority to fire the FBI director except for cause. But both Bill Clinton and Mr. Trump fired their FBI directors before the term expired. The Fed is different from the FBI in a lot of ways—but probably not in this one.
How the play ends depends not only on Donald Trump and Jay Powell, but Congress and the political process. If Americans and their representatives embrace Mr. Trump’s campaign against the Federal Reserve’s independence, no law will protect it.
The WSJ article was written by Peter Conti-Brown, an assistant professor at the University of Pennsylvania’s Wharton School of Business, and author of “The Power and Independence of the Federal Reserve”.
Got Gold?
Ability to do something and desirability of doing so are two different matters.
Firing Powell would likely further rattle the markets, send gold soaring and the dollar down.
Moreover, Trump cannot fire Powell and replace Powell with a dove. The Senate has to approve the next Fed Chair and at a minimum, there is considerable doubt that it would let Trump get away with such tactics.
Regardless, Trump, through a series of bone-headed moves on tariffs and now Fed policy is increasing market volatility.
Yapping No Longer Works
On Friday, New York Fed president John Williams attempted to placate the markets, but it didn’t work: When Yapping No Longer Works
Also on Friday, Treasury Secretary Mnuchin tried to placate the markets calling stocks a “tremendous value”. He is entitled to absurd beliefs, but not absurd reality.
In other statements Mnuchin proved he is Totally Clueless About How Markets Function.
End the Fed
To be sure, I want to end the Fed and let the market set interest rates. However, firing Powell will not accomplish that mission.
The Fed has proven it has no idea where interest rates should be. Neither does Trump.
Mike “Mish” Shedlock
Removing Powell would be a huge mistake on the part of Trump. Given that the Fed has been a disaster for the American people since it’s creation in 1913, the last thing we need is the political yahoos in DC making monetary decisions.
Most people believe that the Fed is at least supposed to be independent, even if that has never actually been the case. That makes firing the Fed Chairman far more difficult. No one has done to a Fed Chairman yet although G William Miller was ‘coaxed’ out by the financial markets screaming in everyone’s ears.
“Some of Trump’s advisers have warned him that firing Powell would be a disastrous move.”
These advisers, always carrying on about this disaster or that disaster. This is America! Our disasters are better than any disasters in the world! People tell me about it all the time! They are literally swarming across the border to steal our disasters from us! But Donald has a plan to keep us all safe! Only Donald can keep us safe from the disaster stealers!
“The Power and Independence of the Federal Reserve”.
The lack of independence of the Federal Reserve. Wilson told the FED to buy federal debt and the FED has never been independent, since. Originally, the 12 FED regions set their own interest rate, to reflect conditions in their region. It is mandated that one size fits all.
Unless the FED can freely go back to its original mission, the FED is not independent.
Trump knows exactly where he wants interest rates: as close to zero as possible. He and other “wealthy” people who inherited their millions around 1980 and rode the greatest credit bubble in the history of the world turning millions to billions know how they got there: paying no interest — interest stolen from millions of people’s savings accounts in the last nine years. Trump had lots of people to choose from for the Fed job — why would he pick Powell? I assumed cause Powell would follow orders. And if he did fire him, whats the alternative? Another super-dove-democrat like Yellen? High interest rates fight inflation. The next inflation will be driven by increasing state & local taxes, as the 1970s inflation was driven by oil. Lets see how long they can keep that little fact out of the calculations.
As of Sunday morning, Trump is now saying that although he disagrees with Fed policy, he does not think he has the ability to fire Powell.
I hope Donny Boy fires him! Got gold?
Back in 2016 everyone knew the wheels were long gone off the economy. The magic pill prescriptions were all done. No one wanted to be president. That’s why we got the choices we got. Hillary was so focused on the history books that she was willing to risk being a one-term president and put in the same camp as Carter and Bush the first. Trump seemed more interested in being in the White House club than anything else, the ultimate “F-U” to all the people (women?) who blackballed him over the years.
Inadvertently, Trump became a useful fool for the establishment, since he presented himself as a small government outsider. The unrelenting character assignation is only to reenforce in the public’s mind that only the Washington insiders and elites are qualified to run your lives. Given the abysmal number of people who are actually investing for their retirement, who really cares what the market is doing? OK, anyone reading this blog is the exception not the rule when it comes to retirement planning. The DJI number makes a great headline, even though most have no idea what it means. And yet another “because TRUMP!” reason for the establishment types to sound smart and encourage us to vote their hand on the tiller instead of perhaps getting rid of the tiller entirely.
Economics is not science. Everyday never before experienced economic phenomena are occurring, at odds with the witchcraft dogma. Here is an old one – you cannot have full employment without inflation. Sorry, you can – see Bill Clinton’s reign. In order to be able to lower rates to goose the economy during a future recession, the Fed is raising rates, thereby causing the next recession. There is nothing real about any of this. There is an unlimited number of digital credits. The Fed can disappear toxic securities. It’s all make believe, suited to a club to which you will never belong. All all the big banks are clued into what the Fed does before they do it. Are you?
The whole system is made up if that’s what you mean. And the Fed has been doing shady stuff through banks in the Caymans to the bond market for decades. The real issue at hand has been how it affects the broader economy. The economy use to drive the markets. Imo Powell is trying to get back to that.
The bond market is in charge of interest rates, not the FED.
Trump is an idiot and I voted for him. He was a hail mary that is turning into a fail mary. The economy is more of a sham than ever as most of the growth is due to one time tax cuts and more unsustainable jobs in the private sector due to cheap interest rates and looser lending practices (not to mention a ballooning deficit and increasing debt). The jig will be up as we now have a Fed that isn’t giving a Fed put since Paul Volcker. It is a good thing for the sake of the country and the currency. He is going to clean up the Fed’s balance sheet. It will be painful but it is the medicine the country should have taken over the last 30 years since Greenspan was Fed chair.
The market is recognizing Trump is a disaster at multiple levels. From shutting down the government, to tariffs, to interfering with every aspect of government and private sector, Trump is a daily disaster waiting to happen. He is an uncertainty that markets and businesses no longer like. I predict by next summer the chorus to impeach will be so loud he will resign as the economy fails and we fall into a deep global recession the likes of which the world hasn’t seen since the 1930s.
I don’t think he will be impeached because Congress is too distracted by their own problems of re-election and blaming the other side of the aisle to get anything done.
I do think that the DNC will win the presidency in 2020. All they need is a body, qualifications won’t be necessary.
It’s time for president Dewayne Alizondo Mt.Dew Camacho!
Trump’s full transgressions have not yet been revealed. The joke is really on the American people.
Trump will do what suits him at that point in time.
During election time it suited him to blame the Fed, so he blamed the Fed regarding ZIRP, When the market rallied after he became President it suited him to crow over it (though it was foolish IMO to own to something that you were not a part of, moreover when it was evident it will come down during your tenure to 2020) and ZIRP was an inconvenient truth. But then Trump just cannot seem to pass up any opportunity to make Trump Look Great Again!
Now that the market seems to have turned decisively (still we do not know, as markets have turned back after 20% falls earlier in the recent decade), Trump is trying his best to keep the party going till 2020.
If Powell blinks or is removed. the market is likely to be toast. Let us see how it goes…
Sorry, you are so wrong. You are not a lawyer. For cause is a well established standard in employment law. It cannot possibly include disagreeing with the policy. The president does not have power to fire the Fed chair.
So according to you, if the Fed chair wants to get rid of the President, he can intentionally play havoc with the economy before the election? We have seen many unelected rogue bureaucrats working against the current POTUS and his policies.
What does ‘for cause’ mean anyway? Womanizing? Gambling? Drinking? Immorality? ‘Unsatisfactory performance’? Political leaning?
For cause is easy to define. Has the Fed been derelict in their duty and not lived up to their agreement ? No. One could argue it is the whims of the President given he hired Powell a year ago. This isn’t about Powell or anyone else at the Fed. It is about the person sitting in the office of the Presidency.
In a former world I would cite “for cause” to be more aligned with personal conduct and open involvement in politics.
But today we have a rather corrupt government and for cause under past regimes could stand for anything and everything. There’s a much finer line between “disagreement” and “inciting revolution against the State” than there used to be and it’s only getting narrower with each presidency.
Since the Fed is an extension of the private banks and not a branch of federal government, I doubt President Trump replacing the Fed chair will alter policy. One thing I do like about Powell is that he seems more coherent than other recent Fed chairs. A replacement might say stuff like, “I know you think you understand what you thought I said but I’m not sure you realize that what you heard is not what I meant.”
There might not be anything Trump can do to make the central bank stop hiking. In that respect, he drew a short straw. I also think he needs to be careful who he fires. The 2019 House is guaranteed to make a federal case out of everything they can.
Jimmy Carter fired both Arthur Burns and G. William Miller within the span of 2 years.
Of course Trump can fire Powell if he wants to.
Not exactly what happened re Carter. But using that logic Trump could fire Steven Munchin and then try to appoint Powell to be the new Treasury Secretary. But Powell could decline the appointment I believe.
Carter did not fire Burns – he just didn’t re-appoint him. He appointed G Wm Miller who was a disaster. But Miller wasn’t exactly fired either – just moved to Treasury – although everyone knew why.
but but but but but but the economy is “booming”,the unemployment “rate” is at record low,the inflation “rate” is near zero, the gdp “rate”is above 3%,why is trump afraid of….wait for it……2.5% (lol)interest rate?tellin me this “booming” economy can’t handle anything but zirp?really!!!
Fire the Fed, not just Powell. Wholesale changes are the solution. Remove one twit, there’s another twit waiting to take his/her place.
Powell is just allowing interest rates to come back to where they belong, and heading the Fed Balance sheet back to a more normal level, not something radical. In any case, the Chairman of the Federal Reserve does not set policy on his own. If they put another QE guy in as chairman, there is no guarantee that the policy would change back to QE.
Support Rand’s Audit the Fed, and his daddy’s End the Fed. Go for Gold. And Silver. Like the Constitution says
Rand is nestled cozily between Trumps buttocks…. and ending the fed will make interest rates rise to where they should be. There’s no way Rand will go after the fed now.