Donald Trump is unhappy with Federal Reserve Chairman Jerome Powell and wants to fire him.
There’s only one teensy problem: Trump doesn’t have the authority to do so.
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.
Trump is not the first president to be frustrated with the Federal Reserve, but no chief executive has ever considered firing the chairman because he didn’t like the Fed’s interest rate policies.
The fallout from such a move could be devastating for the economy.
Such a move would represent an unprecedented challenge to the Fed’s independence. Though he was nominated by the president, Powell was thought to be insulated from Trump’s dissatisfaction by a tradition of respect for the independence of the central bank.
That separation of politics from monetary policy is supposed to instill confidence that Fed officials will do what’s right for the economy over the long term rather than bend to the short-term whims of a politician.
Trump’s frustration with Powell has greatly intensified in recent days, said two of the people. Though Trump’s aim is to stop interest rate increases that slow economic growth, such a move could backfire by roiling already turbulent financial markets.
Even routine changes at the top of central banks create uncertainty in markets as investors try to assess how tough a new leader may be in preventing the economy from overheating and accelerating inflation. Another problem with dismissing a sitting Fed chief may be finding a replacement who wants assurance that he or she won’t succumb to the same fate as Powell.
It’s almost certain that Trump doesn’t have the authority to fire the Fed chairman.
While the president appoints the Fed’s board of governors, including the chairman, the central bank “derives its authority from the Congress, which created the System in 1913 with the enactment of the Federal Reserve Act,” according to the Fed’s website.
“The Board reports to and is directly accountable to the Congress but, unlike many other public agencies, it is not funded by congressional appropriations,” the site says
“The President can nominate a chair but once the chair is confirmed, the president is out of it and the only way you can remove a chair from office is literally if they broke the law. Congress will have to find a cause to remove them from office through a vote and a procedure,” Ellen Zentner, Morgan Stanley’s chief U.S. economist, told CNBC in October.
Powell and the Fed’s board of governors have raised rates because economic growth during Trump’s term has raised the specter of inflation. The Fed chairman is only doing his job: raising rates to slightly slow the economy in order to keep prices from rising too precipitously.
But the rising rates have also raised warning signs for the stock market, as investors hedge their bets against slower economic growth. Trump is only making it worse by introducing more uncertainty in the market.