Australia and the World Past and Present

If there is one institution that most agree should not be affected by political influence, it is the Federal Reserve.

Most conservatives would probably hold this view too.

In recent weeks, Donald Trump has verbally attacked the chair of the Fed, Jerome Powell.

Trump has stated “I believe he’s making a mistake by not lowering interest rates”.

The US President has also called Powell “a major loser” and that his “termination can’t come soon enough”.

Part of the irony of all this that it was Trump himself who nominated Powell to be chair of the Fed in 2017.

Share markets are visibly unsettled by Trump’s talk of firing Powell.

In any case, Powell only has one year left to serve on his current term.

Even if Trump were able to dismiss Powell, that doesn’t address the issue of the other members in the Board of Governors. Powell doesn’t set policy alone. He works with the Boards of Governors when considering any changes. Changing the chair of the Fed may have very little impact on the views of other board members.

There is fear that a loosening of monetary policy may lead to galloping inflation or even a recession.

Powell has stated that the President doesn’t have the power to remove him.

There is some ambiguity over the legality of dismissing the chair of the Federal Reserve.

The Federal Reserve Act of 1913 provides that governors can be removed “for cause” but the act doesn’t mention the chair.

Also, in 1935 the Humphrey’s Executor court ruling established that there was “for cause” protection for the leaders of government agencies.

On the other hand, in 2020 the Supreme Court found that the “for cause” protection for the head of the Consumer Finance Protection Bureau was unconstitutional.

Trump’s attack on Powell is part of the wider project of strengthening and consolidating executive power. Trump wants the unrestricted ability to hire and fire any one in the executive branch for any reason.

There are political reasons why Trump would want to use Powell as a scapegoat. Many economic indicators in the US are traveling in the wrong direction. Trump promised a lot and doesn’t appear to be delivering the promised results. Americans are paying more for the same items due to the application of tariffs.

So now the line is that it is Powell’s fault, or Joe Biden’s.

The whole affair shows that for Trump, no institution is sacred.