Trump now wants to fire Fed boss Jerome Powell, say insiders
US Federal Reserve Chairperson Jerome Powell. (Photo: Alex Wong, AFP)
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Fed officials debated hiking rates to restrictive territory
US President Donald Trump has discussed firing Federal
Reserve Chair Jerome Powell as his frustration with the central bank chief
intensified following this week’s interest-rate increase 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.
Any attempt by Trump to push out Powell would have
potentially devastating ripple effects across financial markets, undermining
investors’ confidence in the central bank’s ability to shepherd the economy
without political interference. It would come as markets have plummeted in
recent weeks, with the major stock indexes already down sharply for the year.
White House spokespeople declined to comment, as did Fed
spokeswoman Michelle Smith.
Trump’s public and private complaints about members of his
administration have often been a first step toward their departures – including
former Attorney General Jeff Sessions, his first Secretary of State Rex
Tillerson and outgoing chief of staff John Kelly.
It’s unclear how much legal authority the president has to
fire Powell. The Federal Reserve Act says governors may be “removed for cause
by the President.” Since the chairman is also a governor, that presumably
extends to him or her, but the rules around firing the leader are legally
ambiguous, as Peter Conti-Brown of the University of Pennsylvania notes in his
book on Fed independence.
slams Fed hours after his pick Powell lifts interest rates
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 instil 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.
bankers say Fed not going ‘loco’ as Trump sounds off
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.
Trump is in the midst of a rolling shake-up of his
administration. Since the November midterm elections, he’s announced the exits
of Sessions, Kelly, Interior Secretary Ryan Zinke and Defence Secretary James
Mattis. At the same, the threat of a government shutdown has added to the sense
among investors of disarray in Washington.
Equities just recorded their worst week since 2011, with the
S&P 500 falling 7.1% and the Nasdaq Composite descending into a bear
market. Trump has laid a lot of the blame on the Fed, saying at one point in
October that the central bank was “going loco” for raising rates.
Some of Trump’s ire has been directed at Treasury Secretary
Steven Mnuchin for his part in persuading the president to select Powell to
lead the Fed.
hikes rates, warns more coming as it brushes off Trump jabs
Powell has borne the brunt of the criticism recently,
peppered by public complaints about interest rates from the president and at
least one of his advisers. Less than two weeks ago, before the Fed’s latest
rate decision, Trump said Powell was “being too aggressive, far too aggressive,
actually far too aggressive.” He told Reuters the central bank “would be
foolish” to proceed with a rate hike.
The Fed announced a widely anticipated rate hike on
Wednesday and Powell signaled he’ll be more cautious about tightening next
year. But investors’ concerns over the chairman’s comments led to US equities
to record their steepest declines for any Federal Open Market Committee
announcement day since 2011.