President Donald Trump’s fury at the Federal Reserve again spilled into public view on Saturday when the president asserted he had the power to demote or even dismiss the central bank’s chairman, Jerome Powell, whom he selected for the role.
“I think I have the right to remove. I have the right to also take him and put him in a regular position and put somebody else in charge. And I haven’t made any decisions on that,” Trump told reporters during a coronavirus briefing at the White House.
Legal scholars say that Powell can only be removed or demoted “for cause” and that this must involve something more serious than a disagreement over policy.
But the picture is a bit muddied because a novel legal theory arguing that a president should have more power over independent federal agencies such as the Fed has become popular among some of the new conservative judges appointed to federal courts by Republicans including Trump.
Legal experts note this is an untested theory and would likely lead to years of litigation in the federal courts. In the meantime, Powell would likely be able to complete his four-year term as chairman, which ends in 2022. And the uncertainty would roil financial markets, economists said.
Plus there are Fed watchers who consider the central bank to have been all too accommodating to Trump’s stated wishes, including the well-known consumer advocate Ralph Nader, who suggested the Fed had sacrificed independence in the Trump era:
Demoting Powell, whom Trump nominated to lead the central bank after opting not to renew Janet Yellen’s tenure, would also be highly questionable. Former Fed officials have said a demotion would also have to be “for cause.”
The Washington Post reported this week that Trump was furious with the Fed and blamed the central bank for the massive stock declines over the past few weeks. The heights achieved by the Dow Jones Industrial Average DJIA, +9.36% during his term in office had been a source of pride for, and the topic of boasts from, the president. Trump said he was pleased stocks rallied during his Rose Garden press conference on Friday.
The Dow industrials are now up slightly less than 17% overall since Trump’s inauguration, even after Friday’s nearly 9.4% bounce.
During the Saturday press conference, Trump complained the Fed was not being proactive and was “following.”
“Our Fed is not doing what they should be doing. We shouldn’t have a Fed [interest] rate that his higher than our competitor nations. If you look at Germany, they are essentially under zero. Japan is negative. Others are negative,” Trump said.
Economists see negative interest rates in Germany and Japan as a signal that their economies face weaker outlooks than does the U.S. economy. But Trump has long insisted it would be better if the U.S. had the lowest interest rates of any major economy.
Fed watchers think the Fed is in fact going to take aggressive action this week and cut its benchmark rate by a full percentage point to a range of 0% to 0.25%, on the heels of a rare intermeeting rate reduction early this month. The Fed leadership has been clear that it does not believe pushing the benchmark interest rate below zero would help the economy.