President Donald Trump, reportedly angry over the U.S. central bank’s decision to raise interest rates last week, has talked about ousting Federal Reserve Chairman Jerome Powell, according to a report by Bloomberg News.
The report, based on “four people familiar with the matter,” said they were not convinced Trump would move against Powell, but that the president’s ire remained elevated over rising interest rates. Rates are climbing at the same time that the stock market
has wiped out 2018 gains.
On Friday, Trump’s economic team split publicly over the Fed.
Trump’s trade adviser Peter Navarro told a Japanese newspaper that “we” — presumably meaning the White House — didn’t want to see any more interest-rate hikes from the central bank.
The Fed has penciled in two rate hikes for 2019. Navarro said that would be “two too many.”
“We don’t understand why the Fed is acting so contractionary, at a time when there’s no inflation to worry about,” he said.
White House chief economist Kevin Hassett said he disagreed with Navarro.
“That’s Peter speaking for himself,” Hassett insisted.
“I think the appropriate position for an economist in the White House is to respect the independence of the Fed and not comment on their policies,” Hassett said.
Treasury Secretary Steven Mnuchin has not shied away from talking about the Fed.
Earlier in the week, Mnuchin argued that the market had overreacted to the Fed decision. He suggested the Fed might be done raising interest rates. Some of Trump’s anger has been directed at Mnuchin for selecting Powell.
Experts are in agreement that Trump can’t actually fire Powell.
Central bank officials can be removed only for “cause” and that is understood not to include policy disagreements.
Mark Spindel, chief investment officer at Potomac River Capital, and co-author of a book “The Myth of the Fed’s Independence” said seemingly settled administrative case law might not stop Trump from deciding to go ahead and try to remove Powell.
“I could easily imagine the president could find a lawyer to concur that there is ‘cause’ to remove the Fed chair, like malfeasance over the economy,” Spindel said in an interview with MarketWatch. “Who is going to tell him not to do it?”
Peter Conti-Brown, a professor at the University of Pennsylvania’s Wharton School, has suggested Trump could try to demote Powell from the chairmanship even if he could not fire him as a governor. Powell wears two hats at the Fed. While he has a four-year term as Fed board chairman, he is also a Fed governor for a term that expires in 2028.
The result of trying to demote Powell would be “market chaos,” Conti-Brown said, and it is not even clear it would work, he said on Twitter on Saturday. The Federal Open Market Committee, which sets Fed policy, can elect any of its members to lead them.
A thread on the chaos and futility that will occur if Trump attempts to fire Powell, building on this oped from earlier this month. /1 https://t.co/HONrySzZw2
— Peter Conti-Brown (@PeterContiBrown) December 22, 2018
Spindel said there were no scenarios under which firing Powell would leave either the economy or the president in a stronger position.
“I’m not sure the president would be better off in political, legal or financial market dimensions,” he said.
Markets would rebel if it saw the Fed as a political tool of the White House. The dollar
would depreciate, bond yields
would rise and the stock market would suffer, Spindel said.