On Wednesday, during the post-FOMC press conference, Jerome Powell was asked at least twice to comment on recent Fed criticism emanating from Donald Trump.
In both cases, Powell demurred, or if that’s not quite right, it’s fair to say the Fed chair did his best to avoid going on the record with anything other than perfunctory comments.
“I don’t discuss elected officials, publicly or privately”, he said, when asked by a reporter from Politico if there will ever come a time when it’s appropriate for the Fed to make a statement in defense of its independence amid withering criticism emanating from the White House. Asked what he would do if Trump tried to remove him, Powell simply reiterated that the law is clear – he has a four-year term and he intends to serve it.
One person who isn’t so sure about that latter bit is Donald Trump.
On Wednesday evening, just hours after Powell reiterated that he intends to serve his full term, Bloomberg reported that according to people familiar with what’s going on inside Trump’s “very large brain”, he believes he does in fact have the authority to replace Powell.
“In Trump’s line of thinking, he could demote Powell to be a board governor, but isn’t planning to do so right now”, Jennifer Jacobs says, adding that “White House lawyers think there is a way to follow through with a demotion if that’s what the president wants, but there has been some disagreement in the Counsel’s office.”
Trump’s apparent insistence on the feasibility of demoting Powell was communicated to people close to the president “as recently as Wednesday”, Jacobs said.
In other words, it sounds like Trump was responding directly to Powell’s contention that the law is on his side. Trump is essentially pulling a Judge Dredd (“I am the law”).
This latest bit of gossip only adds to the tension following Tuesday’s “big league” news that the White House counsel, at Trump’s urging, considered options on removing Powell back in February.
You’d be forgiven for thinking that the White House is leaking this on purpose to pile ever more pressure on monetary policy. Trump has used this strategy before (i.e., leaking plans to fire someone and/or the pretext for doing so to the press) in order to bring people to heel.
If that’s the case here, it certainly appears to be working. Powell was as dovish as he could possibly be without actually cutting rates on Wednesday, and the idea that he and the rest of the Fed aren’t feeling any pressure from Trump is laughable. After all, Trump had Powell and Clarida for dinner earlier this year (steaks, of course) and has called the Fed chair on the phone at least twice.
On Tuesday evening, Trump explicitly tied Powell’s future as chair to Wednesday’s proceedings.
In case it’s not clear enough: If the Fed doesn’t cut rates in July, Powell is out as Fed chair. That is just all there is to this discussion.
And if you’re inclined to suggest that Trump won’t get away with that, I would politely ask you to tell me who, exactly, is going to stop him? Congress? Steve Mnuchin? William Barr?
Give me a break.