Trump says he ‘made’ Fed’s chief
Markets take stream of attacks in stride
WASHINGTON — The stock market has taken in stride the almost daily drumbeat of President Donald Trump’s attacks on Federal Reserve Chair Jay Powell, caring more about how the two men tackle their respective jobs than how they handle each other.
Trump is unhappy with Powell and the Fed for raising interest rates too high last year while central bankers in other countries keep rates low to support their economies. Whether Trump would fire Powell — or can legally — has been the subject of debates on the financial news networks, sometimes involving Trump himself.
Doing so would be unprecedented, and experts say that’s why the markets need to take a wait-and-see approach, even though they have a large stake in who runs the Fed, and how.
“Events have taught us that your ability to anticipate something that’s never happened before is very low, you’re not going to be right,” said Steve Chiavarone, equity strategist at Federated Investors.
In his latest criticism, Trump said in an interview Wednesday on the
Fox Business Network that he “made” Powell but now would like to trade him in for Mario Draghi, the head of the European Central Bank. Draghi said last week that he was prepared to provide more stimulus if necessary to support the lagging European economy.
After raising rates four times last year, which Trump and some on Wall Street have blamed for a big drop in stocks in last year’s fourth quarter, most investors believe Powell and the Fed are on track to do what Trump wants — cut interest rates — to help protect the U.S. economic expansion. Powell has said the biggest threat the Fed sees to the economy is the trade war Trump is fighting with China.
In May, Trump’s decision to raise existing tariffs on Chinese goods and threaten additional import taxes contributed to a 6.6 percent decline in the S&P 500 index. But Powell’s recent intimations of a coming rate cut helped send the S&P 500 back to a record last week.
In his interview Wednesday, Trump did not acknowledge the Fed’s change in policy. And Trump again insisted he had the right to demote Powell or to fire him, something that legal experts dispute. They contend that Powell can only be removed for malfeasance in office, not for a policy dispute. Powell’s term as chairman runs until February 2022.
If Trump did try to remove Powell, it probably would hurt the market in the long term because it would damage the Federal Reserve’s independence, Chiavarone said. But he is hesitant to predict what it would mean in the short term, particularly because Trump probably would replace Powell with someone who would be quick to cut interest rates.
Mark Zandi, chief economist at Moody’s Analytics, said the market probably would become worried if Trump succeeds in getting close political allies on the seven-member Fed board.
“At the moment, markets see this as much ado about nothing but this could change quickly if the president succeeds in packing the Fed with his partisans,” Zandi said.