By John McDonald
Jerome Powell has served as the chair of the Federal Reserve since February 2018, and President Trump celebrated the first anniversary of Powell’s appointment to the position by exploring options for having him removed from the office.
According to “people familiar with the matter” who serve as sources for Bloomberg, the White House counsel’s office examined the legality of stripping Powell of his chairmanship.
The move would have left him a Fed governor, but no longer the chair of the Fed. Once that was done, Powell could conceivably have been replaced with another sitting Fed governor.
Ultimately, the president did not opt to pursue Powell’s replacement or “swapping” him for another governor, but President Trump recently said he would “trade Powell for Mario Draghi,” head of the European Central Bank.
Some believe this indicates the administration still has trades top of mind. The president has repeatedly said the economy would be in far better shape today if Powell and the Fed had not raised interest rates late last year.
In December 2018, speculation was rampant that the president would at least attempt to replace Powell. Many analysts warned at the time that already jittery markets would “erupt” after the worst week for the Dow since 2008.
Given that planned changes in Fed leadership make investors nervous, an upset would clearly have created turmoil. It may be that this is why the president opted not to make the move, other than the Fed did not ultimately do anything else “crazy.”
Some analysts posited at the time that markets might actually bounce in response to a Powell firing out of “reflexive disdain for Powell’s policies.”
Reports that the president explored hiring Powell are nothing new, but the rumor has resurfaced recently as the markets have shifted back and forth in anticipation of a rate cut.
Powell has said the Fed will “do what is necessary and appropriate” in response to lagging economic growth but left it to investors to interpret exactly whether that means he will cut interest rates or not.
Six days ago, Powell hinted the Fed was “grappling…with uncertainties” about the global economy and ongoing trade wars. However, St. Louis Fed president James Bullard stated firmly he does not believe more than a quarter point is necessary.
President Trump has called for some type of rate cut in recent weeks, saying a cut could “help win the trade war” by taking steps to match Chinese stimulus in the United States. “It would be game over,” if the Fed did this, he tweeted recently.