Trump Is Considering Firing Fed Chair Powell
by Tyler Durden
ZeroHedge.com
Sat, 12/22/2018
if amid the barrage of negative news hitting the market this quarter there has been one outstanding item which would have sent it sharply (even) lower, that would be a flashing red headline – or a tweet from the president – announcing that Trump has fired Fed Chair Jerome Powell.
And while to many such an act would seem unthinkable, even from someone as unorthodox and unpredictable as Trump, it now appears that’s precisely the outcome the market will have to worry about next as Bloomberg reports that the president has discussed firing Federal Reserve Chairman Jerome Powell “as his frustration with the central bank chief intensified following this week’s interest-rate increase and months of stock-market losses”, citing four people familiar with the matter.
While advisors in Trump’s inner circle have rightfully warned him that firing Powell would be a “disastrous move” for stock prices, and instead are “hoping that the president’s latest bout of anger will dissipate over the holidays”, the sources reveal that the president – who is facing the imminent departure of two of his closest advisors, chief of staff Kelly and secretary of defense Mattis – has talked privately about firing Powell many times in the past few days.
Still, even Trump likely realizes that any attempt to push out Powell would have a devastating effect on the one barometer of his presidency he holds dearest to his heart – the stock market – and not only that, but terminating the Fed chair would likely send a shockwave across global financial markets, resulting in a collapse of risk asset prices and undermining investor confidence in the central bank’s ability to guide the economy without political interference. Worse, it would come at the worst possible time, just as markets are in freefall in recent weeks, with the Nasdaq just entering a bear market and the S&P less than 3% away from being 20% down from its all time highs.
It is likely that any move against Powell would be met by considerable legalistic resistance as it is unclear how much legal authority the president has to fire Powell, as the Federal Reserve Act says governors may be “removed for cause by the President” and since the chairman is also a governor, that umbrella definition also extends to him. Even so, the rules around firing the leader are legally ambiguous according to Peter Conti-Brown of the University of Pennsylvania notes in his book on Fed independence.
Additionally, while the Fed is independent only on paper, and history is replete with examples of presidents influencing monetary policy in the past, most notably when LBJ literally attacked then Fed chairman William McChesney Martin, there has yet to be an instance of an acting Fed chair being fired by the president.
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.
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