Sources: Powell’s demotion floated
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.
Asked on Tuesday whether he still wants to demote Powell, Trump told reporters: “Well, let’s see what he does.”
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. Speaking earlier Tuesday, Trump’s top economic adviser, Larry Kudlow, said demoting Powell isn’t currently under consideration.
“It’s not happening today so therefore I have nothing to say on it,” Kudlow told reporters at the White House.
Fed spokesman 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 chairman, removing him from the top position while leaving him 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 as a result of changes Congress made to the law four decades ago.
Up to that point, the president simply named the Fed chairman from among governors already confirmed by the Senate. But in 1977, lawmakers amended the act, requiring the Senate to confirm chairman and vice chairman nominees for four-year terms separately from the confirmation of their governorships, which run as long as 14 years.
Alvarez said the courts would likely interpret the 1977 change as removing not only the president’s unilateral authority to name the chairman, but also the ability to dismiss him without cause. There is, however, no precedent for such a move and no way to know how the courts would rule if the Fed, or Powell himself, challenged the demotion.
The White House legal team developed its analysis after Trump in December privately discussed firing Powell after an interest rate increase that roiled global financial markets. The Fed has raised rates seven times since Trump took office.
Fed policymakers met Tuesday and will meet today. No rate move is expected immediately, though economists and investors generally agree the central bank will cut borrowing costs this year.
At less than 2.5%, the Fed’s main benchmark rate remains low by historical standards, meaning that any cuts at this point would further limit the central bank’s ability to fight a recession when it strikes.
Trump has demanded that it reverse rate increases made last year.
Over the past year he has called the Federal Reserve “crazy,” “wild” and “loco.” As recently as last week, he again blamed the bank for its “big mistake” in raising rates, saying on CNBC: “It’s more than just Jay Powell. We have people on the Fed that really weren’t — they’re not my people.”
Trump has openly expressed dissatisfaction with Powell, whom he hand-picked to replace Janet Yellen as Fed chairman early last year.
“He’s my pick — and I disagree with him entirely,” Trump said last week in an interview with ABC News. “Frankly, if we had a different person in the Federal Reserve that wouldn’t have raised interest rates so much we would have been at least a point and a half higher.”
Trump had a casual dinner with Powell and Fed Vice Chairman Richard Clarida in February, Treasury Secretary Steve Mnuchin said at the time. The Fed released a statement shortly after the meeting saying that the group discussed the U.S. economy’s performance and outlook, but that Powell didn’t share his expectations for monetary policy.
Powell told the CBS News program 60 Minutes in March that he didn’t think it was appropriate to comment on Trump. But Powell also said he doesn’t think the president has the authority to fire him. “The law is clear that I have a four-year term. And I fully intend to serve it,” he said.
Senate Democratic leader Charles Schumer of New York said the administration’s analysis of demoting Powell points to “chaos” in the White House.
“What we have learned through the decades is that when monetary policy is tampered with politically, the average middle-class person is hurt,” Schumer told reporters on Tuesday. “President Trump has no understanding of history, he has no understanding that there are people who know these issues better than him.”