By John McDonald
President Trump is not shy about voicing his displeasure when other federal entities appear to fall short of supporting his goals for the U.S. economy. One individual who has routinely received public presidential criticism for fiscal policy is, not surprisingly, Federal Reserve Chairman Jerome Powell.
In fact, the two have held such divergent opinions in some instances that the White House reviewed the legality of removing Powell from his position.
This, also not surprisingly, set off a firestorm.
While the White House legal team allegedly established a possible blueprint for demoting Powell instead of removing him, the Fed fired back via spokeswoman Michelle Smith, who simply said, “[The Chair] may only be removed for a cause.” The president has not attempted to remove Powell directly, but this has not prevented political opponents from speculating about the results should he choose to do so.
House Speaker Nancy Pelosi said on the topic, “The last thing we need is a president threatening the chairman of the Fed,” while the press has queried any and everyone who might have any insight into the case. The president’s own chief economic advisor, Larry Kudlow, when asked about the topic last November, observed only, “A Fed Chair can only be removed for cause.”
Powell himself observed defiantly, “The law is clear that I have a four-year term, and I fully intend to serve it.”
The issue, many analysts say, is largely one of the re-elections – presidential reelection. According to critics, President Trump is attempting to set up the Federal Reserve as a scapegoat if the economy falters over the course of the next year leading up to the election.
In that event, he will blame the Fed for stonewalling his economic policies and failing to support the U.S. economy and the American people, those people say. President Trump’s tweets about the Fed are certainly less than friendly.
“Because of the faulty thought process we have going for us at the Federal Reserve, we pay higher interest rates than countries that are no match for us economically,” he tweeted on July 19, 2019. In late June, he suggested European Central Bank president Mario Draghi would be a better Fed Chair than Powell.
However, around the same time, he denied threatening Powell with demotion and said he believed Powell would “eventually” cut rates although “he should have done it sooner.”
The Fed’s apparent belief that the president cannot fire Powell simply for failing to support presidential economic policies appears to be on solid ground. In fact, the White House legal team ultimately concluded it would be “highly questionable” to fire Powell completely, which is where the rumors of a demotion originated.
Readers should note all sources of information requested anonymity, inherently reducing their credibility.
Regardless of what happens to Jerome Powell over the next few months, his decisions regarding interest rate policy will have a substantial effect on the remainder of the 2019 economy.
After investors recently reacted with massive amounts of market negativity to news that the Fed considered the labor market strong and, as a result, had opted not to cut rates, Powell will certainly feel the pressure to cut rates by the end of this summer. It remains to be seen how this will affect both the short- and long-term economic stability of the country, not to mention Powell’s own position at the Fed.