Warnings of chaos if Trump sacks Fed chair
US President Donald Trump has asked internal and external advisers whether he can fire Federal Reserve chairman Jerome Powell, two people familiar with the exchanges say, in a sign of his mounting frustration with the central bank chief.
News of Trump’s discussions about Powell prompted rebukes from lawmakers and alarm among economists and Wall Street executives.
Treasury Secretary Steven Mnuchin later tweeted a statement from the president: ‘‘I totally disagree with Fed policy . . . but I never suggested firing chairman Jay Powell, nor do I believe I have the right to do so.’’
The two people familiar with Trump’s questions about his authority to remove Powell spoke on the condition of anonymity. One of them characterised Trump’s inquiry as a reflection of his rage over the US stock market’s recent plunge and his desire to blame someone.
Many experts said the president most likely does not have the authority to remove Powell, whom Trump nominated to lead the central bank a year ago.
Trump has shattered many norms since becoming president, but one that has caught investors and economists off guard is his willingness to publicly rail against central bank policy.
Beginning in the Clinton administration, White House officials have largely avoided public criticism of the Fed, worried that any political pressure on the central bank could tarnish its reputation and cause investors and foreign finance ministers to question its actions.
Trump has ranted publicly for weeks about the way Powell is leading the Fed, charting a course of slow but steady interest rate increases to contain inflation.
The fact that Trump has spoken with advisers about whether he can fire Powell was first reported by Bloomberg News.
The US stock market is on track for its worst year in a decade, with many sectors down more than 20 per cent. The sell-off continued in the past week – the worst for the market since 2008 – after Powell signalled that the Fed did not have plans to sharply change course.
Trump’s questions about his authority to dismiss Powell underscore how much he fears that the stock market slide, and looming worries about economic growth, could threaten his reelection chances and weaken him politically.
Wall Street executives have urged Trump to step back from his attacks, and they say any move to dismiss the Fed chair would cause a massive sell-off in the markets and rattle the global financial system. The independence of the Fed, and the freedom it has to make decisions regardless of politics, had long been critical factors supporting the US economy, economists said.
‘‘If Trump tries to fire Powell, there would be a catastrophic reaction in the markets,’’ said Greg Valliere, chief global strategist at Horizon Investments. ‘‘That is so reckless that [National Economic Council director Lawrence] Kudlow and probably Mnuchin would resign, just as [Defence Secretary Jim] Mattis did.’’
The Federal Reserve Act says that a Fed governor can be removed ‘‘for cause’’, which courts have interpreted as criminal activity or malfeasance, as in other cases regarding independent agency leaders.
Powell is both one of the Fed’s governors and its chair. The law is silent on whether someone at the Fed can be stripped of the chair position.
‘‘The law isn’t clear,’’ Fed historian Peter Conti-Brown, a professor at the University of Pennsylvania, wrote in a series of tweets. ‘‘Trump can probably dedesignate a Fed governor as board chair, but not fire the governor.’’
If the president even attempted to remove Powell as chair, it would probably end up in court, and ‘‘we have no idea what the court would do’’, said ContiBrown, which is why he is predicting ‘‘chaos.’’
If Trump succeeded at removing Powell from the chair position, it’s uncertain what would follow. The Senate would have to confirm a replacement, and many lawmakers have stated that they believe in the independence of the Fed and support Powell. Meanwhile, it’s not clear that any of the other Fed governors would take the Fed in a different direction.
Regardless, Fed decisions are the result of a vote by a board of 12 members, including Powell and six other Fed governors serving in Washington and five regional Fed presidents. There are only five governors currently appointed, which means decisions are split between those serving in Washington and the regional Fed presidents, who are not appointed by Trump.
Trump’s main complaint is that Powell is raising interest rates too quickly, which he worries will hurt the economy and his 2020 re-election chances.
– Washington Post