Fire Jay Powell?
By Dr. Harold A. Black
blackh@knoxfocus.com
haroldblackphd.com
President Trump has been itching to fire Federal Reserve Chair Jerome (Jay) Powell. Although he appointed Powell to the post in 2018, Trump has found that he cannot publicly shame Powell into bending to his will. Right now, Trump wants Powell to lower the Fed funds rate, much like the European Central Bank lowered rates in response to Trump’s tariffs. Trump tweeted: “Powell’s termination cannot come fast enough!” Powell “should have lowered Interest Rates, like the ECB, long ago, but he should certainly lower them now.” Mind you, the ECB lowered rates because Trump imposed high tariffs on them. Presumably, Trump wants Powell to lower rates to lessen any recessionary impact of his tariffs on the U.S. However, some surmise that Trump wants lower rates to reduce the cost to the government of financing its maturing $9 trillion debt.
Regardless, Powell is resisting Trump. Lowering rates in an inflationary environment could lead to the dreaded stagflation, where increasing tariffs would lead to decreased demand, increased unemployment, along with increased prices. To quote the Bank of Canada, “Monetary policy cannot resolve trade uncertainty or offset the impacts of a trade war.” But Trump is unrepentant and is not pleased.
Can the president fire the chairman of the Fed? That issue is only going to be resolved by the Supreme Court. Powell is insistent that he cannot be fired. The law says that persons appointed by the president and confirmed by the Senate to serve fixed terms can only be removed for cause (and the cause isn’t “I don’t like him”). Powell reasserts the Fed’s independence and says, “We’re never going to be influenced by any political pressure. People can say whatever they want. That’s fine. That’s not a problem. But we will do what we do strictly without consideration of political or any other extraneous factors.” I wonder how Trump feels being called an “extraneous factor”?
However, Trump has fired several appointees who were confirmed by the Senate for fixed terms. Several are suing. The latest firings just occurred at the National Credit Union Administration, where President Carter appointed me to its first board in 1978. Trump fired the two Democrat board members, leaving only the Republican in place. NCUA has three board members and must be bipartisan. When Trump was inaugurated, the NCUA chair, Todd Harper, a Democrat, resigned as chair but not as a board member. Trump fired him, although it was Trump who had nominated him to the NCUA board in 2018. Trump also fired the other Democrat, Tanya Otsuka. Harper’s term expires in 2027, while Otsuka’s expires in 2029. Harper said, “This ill-conceived and politically motivated decision to fire me before the end of my term upsets that important regulatory balance and will harm consumers.” Otsuka called it “yet another attempt to undermine the rule of law and blatantly ignore Congress and our democratic values.” Both were notified of their firing via email. Neither has indicated if they will contest the firings.
White House spokesperson Karoline Leavitt said, “President Trump is the chief executive of the executive branch and reserves the right to fire anyone he wants.” But the question is can he? In 1935, the Supreme Court barred Franklin Roosevelt from firing a Republican member of the Federal Trade Commission without cause. However, the Roberts court has supported Trump’s firing of an appointee who is the single administrator of an agency rather than one on a multiperson board. Since the case now before the Supreme Court was brought by a person fired from the National Labor Relations Board, we will soon see if the firings of Harper and Otsuka, along with all the others, are legal.
If the court so rules that Trump can indeed fire Jay Powell, the firing will cause severe ramifications in financial markets worldwide. What would the reaction be to a new Fed chairman whose every move would be interpreted as being dictated by the White House? What happens to the other Fed governors? Will Trump fire them, too, and replace them with his own people?
The question is, if Trump can fire Powell, would he?
