by D.J. McGuire
Having shaken the foreign policy establishment to its core (which, by itself, is not automatically a mistake) by choosing to cut and run from Syria (which, given the situation on the ground, definitely isa mistake), President Trump is now taking aim at the Federal Reserve’s independence in setting monetary policy.
President Donald Trump has begun polling advisers about whether he has the legal authority to fire Federal Reserve Chairman Jerome Powell, according to two people familiar with the matter, who described the President as newly furious at the Fed chief as markets tumble.
Earlier this year, Trump’s advisers told the President that it was doubtful he would have the law behind him if he fired Powell. But Trump has renewed the issue after the Fed again raised its benchmark interest rate this week.
So far, the White House hasn’t come to a final legal determination on Trump’s authority to fire his Fed chairman, whom he nominated a year ago. The law states the President can fire a Fed governor for cause, but it hasn’t been tested on the firing of a chairman.
This is what Trump said to his Treasury Secretary.
I totally disagree with Fed policy. I think the increasing of interest rates and the shrinking of the Fed portfolio is an absolute terrible thing to do at this time
For those of us in the economic field, this is the equivalent of using a nuclear weapon. As noted above, a Fed Chair has never been fired.
This will be a serious test for both political parties. For my old party (the Republicans), it will be about how much they are willing to let Trump abuse his power and shatter stability. Just about every opponent of Keynesian economics prefers sound money and stable economic policy. A president who fired a Fed Chair because he (Trump) prefers looser money would be the exact opposite of both.
That said, it is just as challenging for my new party (the Democrats). They’ll be willing to call out Trump on abuse of power and stability, but I wonder if they’ll be willing to defend Jay Powell for what he is doing.
This matters because Powell needs defending – not just on a constitutional level, but on a policy one as well. An expansion in its tenth year, a Keynesian sugar high tax cut that is over $150 billion annually, and price hiking tariffs on finished goods and inputs alike are a bonfire worth of inflationary kindling. Any Fed Chair worth his or her salt would respond exactly as Powell did – raising interest rates and reducing the balance sheet from quantitative easing. All that goes double or morefor a Fed Chair in Powell’s situation – with interest rates still well below normal and a balance sheet vastly swelled by quantitative easing.
Federal Reserve Chairman Jay Powell is doing exactly what he should be. As such, he should remain exactly where he is. I fear no Republican will be willing to say either. Many Democrats will say the latter, but I fear I may be the one of the very few willing to say both.
That doesn’t make me wrong, though.