Home Economy Trump Is Considering Firing Fed Chair Powell

Trump Is Considering Firing Fed Chair Powell

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Update: shortly after 6pm, Steven Mnuchin posted a pair of tweets in which he denied that Trump had ever suggested firing Powell, which of course is to be expected: after all it was Mnuchin who picked Powell and it was Mnuchin who was blamed on several occasions by the president for picking the former lawyer as Fed chair:

if amid the barrage of negative news hitting the market this quarter there has been one outstanding item which would have sent it sharply (even) lower, that would be a flashing red headline – or a tweet from the president – announcing that Trump has fired Fed Chair Jerome Powell.

And while to many such an act would seem unthinkable, even from someone as unorthodox and unpredictable as Trump, it now appears that’s precisely the outcome the market will have to worry about next as Bloomberg reports that the president has discussed firing Federal Reserve Chairman Jerome Powell “as his frustration with the central bank chief intensified following this week’s interest-rate increase and months of stock-market losses”, citing four people familiar with the matter.

While advisors in Trump’s inner circle have rightfully warned him that firing Powell would be a “disastrous move” for stock prices, and instead are “hoping that the president’s latest bout of anger will dissipate over the holidays”, the sources reveal that the president – who is facing the imminent departure of two of his closest advisors, chief of staff Kelly and secretary of defense Mattis – has talked privately about firing Powell many times in the past few days.

Still, even Trump likely realizes that any attempt to push out Powell would have a devastating effect on the one barometer of his presidency he holds dearest to his heart – the stock market – and not only that, but terminating the Fed chair would likely send a shockwave across global financial markets, resulting in a collapse of risk asset prices and undermining investor confidence in the central bank’s ability to guide the economy without political interference. Worse, it would come at the worst possible time, just as markets are in freefall in recent weeks, with the Nasdaq just entering a bear market and the S&P less than 3% away from being 20% down from its all time highs.

It is likely that any move against Powell would be met by considerable legalistic resistance as it is unclear how much legal authority the president has to fire Powell, as the Federal Reserve Act says governors may be “removed for cause by the President” and since the chairman is also a governor, that umbrella definition also extends to him. Even so, the rules around firing the leader are legally ambiguous according to Peter Conti-Brown of the University of Pennsylvania notes in his book on Fed independence.

Additionally, while the Fed is independent only on paper, and history is replete with examples of presidents influencing monetary policy in the past, most notably when LBJ literally attacked then Fed chairman William McChesney Martin, there has yet to be an instance of an acting Fed chair being fired by the president.

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 instill 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.

The reason behind Trump’s ire is simple: he sees the Fed’s rate hikes as the cause behind the market’s recent slump, and after explicitly “urging” the Fed not to hike rates last week, saying Powell was “being too aggressive, far too aggressive, actually far too aggressive” and telling Reuters the central bank “would be foolish” to proceed with a rate hike, he may well see Powell’s “not so dovish” rate hike as an open act of defiance – usually a career-ending move for anyone who ultimately is accountable to Trump.

The irony is that just over two years ago, Trump attacked Powell’s predecessor, Janet Yellen, for creating a stock market bubble with her dovish policies: in Sept 2016, Trump accused the the Fed of “keeping the rates artificially low so the economy doesn’t go down so that Obama can say that he did a good job. They’re keeping the rates artificially low so that Obama can go out and play golf in January and say that he did a good job. It’s a very false economy. We have a bad economy, everybody understands that but it’s a false economy.”

Two years later, when the same “false economy” belongs to Trump, the president has changed his tune, and his ideal Fed chair would be none other than Janet Yellen (whom Trump refused to reappoint for being “too short.”)

The even bigger irony is that Powell finds himself in a lose-lose situation: one one hand he can merely perpetuate the unsustainable asset bubble created by his predecessors Greenspan, Bernanke and Yellen whose inevitable bursting would have devastating consequences on the financial system (which, however, he can leave to his successor as both Bernanke and Yellen did), or he can bit the bullet and be the one responsible for at least attempting the renormalization of monetary policies, an even which inevitably lead to far greater pain for those who invested in said bubble.

Furthermore, when Trump signed up for the presidency he should have picked one of the two options: the fact that he did not and two years later decided to continue on the autopilot set previously by the Fed is precisely why it is Trump who will now have no choice but to be the fall guy for the mess prior administrations, and previous Fed chairs created.

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.

And while it’s not just Powell who is on the chopping block as some of Trump’s recent anger has also been directed at Treasury Secretary Steven Mnuchin for his part in persuading the president to select Powell to lead the Fed, the fact that Powell’s tenure is now in jeopardy and that the Fed Chair could be fired after even a mere sharp drop in the market – with an S&P500 bear market looming as a likely psychological catalyst – will lead to a self-fulfilling prophecy as traders will now sell merely on the fear of, and frontrunning the news that Trump has fired Powell precisely as a result of such selling.

via zerohedge

24 COMMENTS

  1. That chart sure is worth nothing the number 4.5M is off.. Perhaps the number should be 4.5 T. And is the analysis of the chart good or bad? A ‘normal’ balance sheet ffor an individual would show as being good. However, the US govt is in heavy bad debt. The chart is meaningless unless a graph also shows the total debt and the definition of ‘balance sheet’ as pertains to the USA.

  2. Even if Trump wanted to, he could not replace a FED head. This was included to protect the FED from being politicized by authoritarians like Trump

  3. I believe our President is surrounded by people that are controlled by Obama stooges. He is of the devil.
    My prayers are for him and his family. President Trump, will survive this if, he keeps Christ first in his life. No one can win against God.

    • Trump is the anti-Christ, he is doing everything Jesus preached against. He is a rapist, a liar, a thief, a fraud, a cheat, and is devastating the poor and refugees to make himself and his family and friends richer. Christ would have shunned Trump as the devil. I am a devout Christian and I pray for those gullible Trumpies who call themselves Christian (they are fake Christians) and who continue to support Trump, the ant-Christ.

      • You are an ignorant leftist stooge. You get your talking from CNN,MSNBC,etc. Open your eyes, President Trump is being used by leftist socialists to further the move to be like the EU.

      • Christ shuns no one. He created all and loves all his creation. No one is beyond redemption. As a matter of fact, when the Jews were going to stone the woman caught in adultery (which they themselves were likely to have had an experience with), Jesus asked the men, “…he who is without sin, let him cast the first stone.” They all turned and walked away. But he said to the woman “where are your accusers”…”10 When Jesus had lifted up himself (after writing in the sand), and saw none but the woman, he said unto her, Woman, where are your accusers? hath no man condemned thee?” 11 She said, No man, Lord. And Jesus said unto her, Neither do I condemn thee: go, and sin no more.” John 8:11.

        Our bad attitudes are just as sinful. We all sin…one sin is as bad as another. God is the Ultimate Judge and he will be the one to judge the sins of the unrepented. It is required of us to pray for those who are lost. As far as the president is concerned I am not too sure he is not saved. He has spiritual advisers now around him to give him guidance and though he may be new in the faith, like us who are in the faith, he is not or never will be perfect on this earth, and he is fighting a multitude of demonic forces against him. We have to recognize that this is a spiritual battle not only for the life of America that God raised up for the salvation of the world, but for the hearts and souls of America because the way America goes, so goes the world,

        God used unsaved people and kings (as Cyrus) throughout the centuries according to the Scriptures in his plans, and he will continue to use those for HIS purposes now. We as Christians need to be Christ-like even in this world of hate, greed and corruption. It is not easy to have a good attitude. But only can we do this through the power of the Holy Spirit as there is so much evil surrounding us. Doesn’t mean we have to like everything everyone does. But we must exhibit in our lives the GRACE that God has shown to us.

  4. So WHERE’s the chart…..of America’s ECONOMY UNDER OBAMA, EVEN LAST 4 YEARS, AND DURING THE NEWS TRUMP WAS ELECTED, AND FOLLOWING 2 YEARS OF TRUMP’s ADMINISTRATION.
    MASSIVE JOBS came to life at news he was elected, and the economy took off to new higher highs Obummer could only dream of!

  5. I still find it amazing that the ‘Tribe’ that rule us in every level of our society including our economy, do all of this being only 1% of our population. How is it that this tribe of 1% has the final say over every aspect of life here in the U.S.A.?

    • You never know, Powell might like all the attention an FBI probe and raid into his home his refusal to stop raising interest rates will bring him.

  6. The problem is twofold, 1 Way too much debt for the nation and the world 2 Prevailing Keynesian fractional reserve system, where money is pulled out of thin air and then multiplied by a factor of 10! As if these two things of and by themselves were not bad enough, you also encounter the problem of human bureaucratic inertia or in other words, besides being corruptible, government and its offshoots like the Federal Reserve are perpetually a day late and a dollar short, but in this case, the dollar has no “smack” or intrinsic value to it. Every dollar in every wallet and purse is nothing more than “a non-obligatory note” of debt. The political propensity to spend money (debt) that is not there, is insatiable without even a token nod in the direction of plausibility i.e. no budget, just continuing resolutions and ever-increasing huge mountain ranges of debt and that is the reason why the markets are crashing! One more time, too much debt which is only solved by assets (that is of course if you don’t want inflation or hyperinflation) and the only asset that is counted for 5000 years is precious metals (gold and silver) means US currency needs to be returned to having a base of gold and silver behind it. Politicians won’t like this, because gold and silver have to be seriously accounted for, no got it, no spend it! No vote buying and less interest in making politics a career! A good review of the 10 Commandments (a God-given founding root for civil order in Western civilization) such as, “thou shalt not steal, thou shalt not lie, thou shall not covet etc. etc. The Pathway to security and prosperity is already well-established as long as men and women choose not to ignore Divine Direction! In the name of the Lord Jesus Christ, Amen.

    • We as a nation shouldn’t be controlled by an outside concern like the FED. Congress gave their constitutionally described power of the money to the FED in the early 1900s. President Lincoln
      stated that this country could never be defeated by outside sources but can be brought down
      from within. When Congress decided to relinquish control of printing and coining our currency
      we lost control of our own destiny.

  7. Methinks that this is a precursor to Trump abolishing the privately-owned US Federal Reserve Bank, in a similar move to what President Andrew Jackson did.

  8. Why is the stock market more important than the regular economy and the prices paid by the people. It seems the owner and stockholders of these companies are the inheritors of the vast funds. What does the regular person on the street benefit who may not be into stocks. The only way to gain any reasonable amount of money in stock market is that you have $5000 or $10,000 to put into it. The regular American does not have that kind of money to put into savings or into stocks.

  9. Can someone please explain why we need a the Federal Reserve which apparently seems to be a global reserve? Why not go back to the gold standard? Just wondering? Who started it. Of course congress had to approve it but did it not begin by a foreign person?

  10. Does anyone proofread these articles before they are published? I offer my services, if interested. Typos and grammatical errors leave a bad taste in the mouth.

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