If you had any lingering doubts about whether Donald Trump is determined to commandeer US monetary policy, effectively stripping the Fed of its independence, you can put them to bed.
According to Bloomberg, the White House counsel weighed the legality and possible implications of demoting Jerome Powell in February.
“The White House legal team developed its analysis after Trump in December privately discussed firing Powell following an interest rate increase that roiled global financial markets”, Bloomberg writes, citing anonymous sources. “Trump’s team conducted the legal analysis and came to a conclusion that has remained closely held within the White House.”
Closely held until now, that is. And it’s possible the administration leaked this story a day ahead of the June Fed decision in order to pressure Powell into delivering what Trump wants.
It is, as of now, unclear whether Trump himself directed the review, but given the president’s penchant for maligning Powell publicly and considering rampant reports that Trump considered removing his Fed chair (and, potentially, Steve Mnuchin, who the president blames for recommending Powell) during the December selloff, you’d be naive to think the order didn’t come directly from the Oval Office.
In response to the reports, Larry Kudlow said the administration is not currently considering Powell’s demotion. He called it a “six-month-old story”.
Meanwhile, a Fed spokeswoman reiterated on Tuesday that Powell can only be removed as chair “for cause”. Duly noted, but it’s never been entirely clear what constitutes “cause”, and starting last summer, we variously argued that sooner or later Trump would explore the possibility of moving against Powell on the excuse that the Fed chair is acting against America’s interests. In fact, we pleaded with readers to consider that possibility in August in a post called “Do Not Underestimate Donald Trump When It Comes To The Fed.” Here are some excerpts from that post:
Donald Trump has, unfortunately, eroded America’s institutions. On a daily basis he seeks to encroach on press freedom and judicial independence and he openly calls for the Department of Justice and the FBI to investigate his political rivals and their family members.
The idea that he won’t go after the Fed seems tenuous at best.
We’ve obviously repeated that ad nauseam over the past nine months, as the president’s attacks on Powell became progressively more caustic and, in the case of Trump’s sweaty CPAC performance, highly personal.
Trump’s criticism of Powell continues to this day. Last week, the president lambasted the Fed chair on three separate occasions and the public knows of at least two instances in 2019 when Trump has personally called the Fed chair on the phone (once in March, when he allegedly told Powell “I guess I’m stuck with you”, and once in April).
On Sunday, former Vice Chair Stanley Fischer warned that if Trump is reelected, he will not reappoint Powell and that “will lead to very different monetary policy, so the Fed is not fully independent of politics”.
Because it would be impossible to say this any more succinctly than we put it in August, we’ll just leave you with a couple of additional passages from the first linked post above:
Donald Trump is running deficit-funded fiscal stimulus at a time when the economy is already overheating and he’s demanding lower interest rates in increasingly abrasive terms while simultaneously cracking down on dissent by, among other things, stripping former intelligence officials of their security clearances, stripping career civil servants of their pensions for criticizing him, threatening antitrust action against companies in retaliation for bad press, and on, and on, and on. The writing is on the wall here.
The idea that Trump is going to sit idly by while Jerome Powell drives the policy divergence with America’s trade partners ever wider on the way to pushing the dollar higher and, by extension, fighting China and Europe’s trade battles for them, is silly.
Suddenly, former traders and FX analysts have become political scientists and historians on the way to making claims about what Trump “can”, “can’t” and “won’t” do, when it comes to the Fed. Well, sorry guys and gals, that’s not your area of expertise. Trump will try to overstep here if he runs out of other options for “winning” his trade war.
If he gets irritated enough, he’ll just remove Powell on the excuse the Fed chair is acting against America’s security interests.