President Donald Trump is expecting to fire Federal Reserve Chairman Jerome Powell for raising interest rates, according to a report. This action would be an “unprecedented action by a president against the independent body, that could undermine confidence in the U.S. financial system already under the strain of a vicious equity sell-off.”
Trump has talked about firing Powell in private sessions because of his frustration with stock market losses in recent months, according to Bloomberg News. The report from Bloomberg cited four people familiar with the situation. In recent days the president’s frustration has intensified. According to the report, he has discussed the firing multiple times.
This week the Dow Jones Industrial Average dropped 7 percent. This has been the worst week for the Dow in 10 years due to fears the Fed is unnecessarily slowing the economy. On Wednesday, Dec. 19, 2018, the Federal Reserve Bank raised its benchmark interest rate for the fourth time this year. The Dow is down 9 percent in 2018.
The report stated that Trump advisers warned Powell against such a move. This has never been done by a president and it is not even clear if he has the legal authority to do so. White House and Fed spokespeople refused to comment to Bloomberg.
Can the President Fire the Federal Reserve Chairman?
Powell became the Federal Reserve Chairman in February after Trump nominated him to take over for Janet Yellen. He was confirmed by the Senate and has a four-year term.
The president appoints the Federal Reserve’s board of governors, including the chairman, the central bank “derives its authority from the Congress, which created the System in 1913 with the enactment of the Federal Reserve Act,” as written on the Fed’s website.
“The Board reports to and is directly accountable to the Congress but, unlike many other public agencies, it is not funded by congressional appropriations.”
“The president can nominate a chair but once the chair is confirmed, the president is out of it and the only way you can remove a chair from office is literally is they broke the law. Congress will have to find a cause to remove them from office through a vote and a procedure,” Ellen Zentner, Morgan Stanley’s chief U.S. economist, told CNBC in October.
Regardless, Trump already broke with precedent through his repeated criticism of the Federal Reserve and the chairman to the media and through Twitter, including the week before the central bank hiked the rates. Other presidents privately tried to influence the Fed, however, none of them did so in a forceful manner.
“I think the Fed is making a mistake. There are so tight. I think the Fed has gone crazy,” Trump told reporters in October.
The independence of the Federal Reserve is on of the pillars of confidence global investors have in the U.S. financial system. Firing Powell would undermine that confidence because it would seem the most important central bank was now under the control of a politician, who might not always have the best interest of the economy at heart. Sometimes raising interest rates is necessary to keep inflation under control. The Fed has a dual mandate: to maximize employment and stabilize inflation.
Trump first began his criticism of the Fed in July. Afterward, former Dallas Fed President Richard Fisher told CNBC the president was out of line.
“One of the hallmarks of out great American economy is preserving the independence of the Federal Reserve. No president should interfere with the workings of the Fed. Where I Chairman Powell, I would ignore the president and do my job and I am confident he will do just that,” stated Fisher.
The S&P 500 is less that 3 percent away from a bear market. It was pushed there by the Fed fears and the trade battle Trump has waged with China and the turmoil with his own administration. Contrary to was occurred when Trump first took office, his comments and actions have become negative for the stock market, due to uncertainty caused by the president’s comments.
If the president were to attempt to fire Powell or force his resignation, it could cause the market to drop at least another 5 percent, according to Jeff Kilburg, CEO of KKM Financial in Chicago.
Kilburg said that Trump may want to wait and see what happens. It is likely the Fed will not be as aggressive with rate hikes next year.
“Powell will only go one or two times in 2019.”
Advisers close to the president are not convinced he would move against Powell and are hoping the latest bout of anger from Trump will dissipate over the holidays, the people said on the condition of anonymity.
By Jeanette Smith
CNBC: Trump reportedly wants to fire the Fed chair, a move that could wreak havoc on the financial markets
Bloomberg: Trump Discusses Firing Fed’s Powell After Latest Rate Hike, Sources Say