The News
A top White House adviser said Friday that President Donald Trump was studying whether to remove Fed Chair Jerome Powell, as the White House ratchets up its attacks on the US’s top central banker.
“The president and his team will continue to study that matter,” White House economic adviser Kevin Hassett said when asked if firing Powell was an option.
Trump has lashed out at Powell this week for not cutting interest rates, saying he had the power to sack the Fed chair “real fast.” The president has privately discussed replacing Powell for months, The Wall Street Journal reported.
SIGNALS
Markets would be rocked by any decision to replace Powell
The Fed’s independence has been a cornerstone of the US’ financial stability for decades, and any decision to terminate Jerome Powell would likely scare already jittery investors. “Trump is taking the cudgel to elements of the U.S. institutional framework that have long been seen as free from direct political interference,” said Eswar Prasad, an economist at Cornell University. “This could have serious long-term ramifications for the value and broad use of the dollar in global markets.” Trump’s advisers have repeatedly warned him that the move could lead to a financial tailspin, The New York Times reported, and believe their message has been getting through to the president so far.
It remains unclear whether Trump has authority to fire Fed chair
While Trump’s advisers in his first term concluded he did not have the authority to fire Powell, his administration is currently challenging a 1935 precedent that bars presidents from firing certain federal officials for political reasons in a Supreme Court case. The outcome could hold far-reaching implications for the Federal Reserve’s independence, The Wall Street Journal reported, transforming the central bank into a “fundamentally different institution.” Trump has already tried to assert more control over historically independent agencies, dismissing top labor and trade officials. While the courts have previously said “the president doesn’t get to fire anybody he wants to … the ambiguity now has increased dramatically relative to where we were six years ago,” one expert told The Washington Post.
Interest rate hawk Kevin Warsh is the favorite to potentially replace Powell
Former Fed governor Kevin Warsh has reportedly emerged as Trump’s likely first pick if he does decide to fire Powell. The Economist’s Wall Street editor noted that Warsh’s instincts would likely clash with the president’s desire to cut rates, calling Warsh “one of the most instinctively and consistently hawkish Fed policymakers in modern history.” But Warsh’s bonafides mean “the markets would be very comfortable with” him, a Cambridge economist argued, saying investors prefer “a credible Fed chair that is not in continuous conflict with the White House.” In January, Warsh accused the Fed of playing politics, saying it was focusing on the inflationary impact of Trump’s tariffs while ignoring the potential disinflationary effect of his other policies — a message that would likely have gone down well in the White House.