Donald Trump takes aim at US Fed Chair Jerome Powell
Donald Trump’s efforts to bring the Federal Reserve Board under his control continue to undermine his ability to do just that.
On Wednesday, Trump said he would fire Fed chair Jerome Powell if he doesn’t leave the central bank when his term ends on May 15, and double down on the endless threats he’s made (in both of his terms as president) for not doing what the Fed wants (lowering U.S. interest rates).
“I’m going to have to fire him. OK? If he doesn’t leave on time,” he said in an interview with Fox Business.
“I gave up on firing him, I wanted to fire him, but I hate being controversial,” Trump said.
He also said the Justice Department’s investigation into a massive overrun in the budget for renovations to the Fed’s Washington headquarters will continue, as will Powell’s role in the explosion and his testimony to Congress.
“Don’t you think we should find out what’s out there? Whether it’s incompetence, corruption, or both, I think you should find out. It really is.” The investigation is widely seen as a pretext to pave the way for Powell’s impeachment.
Three DoJ investigators arrived at the Fed’s headquarters earlier this week but were turned away by Fed officials.
Trump’s intransigence undermines his vendetta against Powell and his efforts to replace him with Powell’s successor, presidential candidate Kevin Warsh.
Warsh is scheduled to appear before the Senate Banking Committee, which is reviewing his nomination, next Tuesday.
Republican senator Thom Tillis, an influential member of the committee, said he would vote to confirm Warsh only if the investigation into Powell was dropped. With only a 13-11 Republican majority on the committee, Tillis’ stance would likely freeze the nomination process.
The ongoing investigation also raises the possibility that Powell will refuse to step down as chairman when his term ends (Warsh cited precedent and legal authority that would allow him to remain acting chair until confirmed) and will remain on the Fed’s board until his term as governor ends in early 2028, contrary to normal and longstanding practice.
The Federal Reserve Act says that when their terms end, board members (presumably including the chairman) will continue to serve until their successors are appointed and qualified. In the past, Fed chairmen remained in their positions until their successors were confirmed and joined the board.
Powell said last month that he had “no intention of leaving the board until the investigation is completed in a fully transparent and conclusive manner.”
If he remains on the board, that would eliminate Trump’s opportunity to install Warsh in an open seat.
Stephen Miran, one of the key figures in the administration who resigned as chairman of Trump’s Council of Economic Advisers to join the board, may have to step aside to give Warsh his seat.
Warsh, one of seven governors and only one of 12 voting members of the Federal Open Market Committee, which decides U.S. monetary policy and sets the Fed’s policy rate, will be hard-pressed to deliver on what Trump has repeatedly demanded: lower interest rates to boost the U.S. growth rate and reduce the government’s cost of servicing its skyrocketing $39 trillion ($54 trillion) debt.
Even if Warsh is successfully nominated and Powell does not remain in place, it is unlikely Warsh will impose Trump’s will given current economic conditions.
Before the US and Israel attacked Iran, causing the price of oil to soar above US$100 per barrel, inflation was already rising thanks to Trump’s tariffs; There were material flow-on effects on US fuel prices and the inflation rate.
These effects will last well beyond the duration of the war, making it more likely that the Fed will leave its policy rate unchanged, or even raise it, until there is clear evidence that inflation is falling.
Trump’s determination to continue the investigation into Powell while doing collateral damage to his efforts to seize control or at least gain significant influence over the Fed’s decision-making process continues despite its apparent futility.
In January, the Justice Department issued subpoenas to the central bank, which were overturned by a U.S. District Court judge, who ruled that “there was ample evidence that the predominant (though not the sole) purpose of the subpoenas was to harass and pressure Powell to either bow to the president or resign, making room for a Fed chair who would do so.”
That decision has not yet been appealed, but a visit by federal prosecutors to Fed headquarters this week shows that the Justice Department has not given up pursuing Powell, even though it seems clear that the investigation is driven entirely by Trump’s hostility toward him.
Any attempt to actually fire Powell is unlikely to succeed.
Fed governors can only be fired “for cause,” and an attempt to oust another governor, Lisa Cook, on “trumped-up” mortgage fraud charges — without any evidence of fraud presented — is going through a cumbersome process before the U.S. Supreme Court; here the justices appear to be concerned about any encroachment by the White House on the Fed’s independence.
The intensity of Trump’s distaste for Powell, resulting from Powell’s refusal to do what Trump wanted and cut rates regardless of economic context, blinded him to the logical course of action: End the investigation, get Warsh confirmed, and hope Powell resigns from the board.
Even if Warsh is successfully nominated and Powell does not remain in place, it is unlikely Warsh will impose Trump’s will given current economic conditions.
Nor does he seem to appreciate that even with Warsh in place and Powell gone, he would still struggle to impose his will on the Fed, which has perhaps demonstrated increasing independence through its blunt efforts.
Trump was optimistic when asked in an interview this week whether he expected interest rates to fall this year.
“I come in when Kevin comes in,” he replied.
Warsh and Miran — even though Trump’s other two nominees to the board (Michelle Bowman and Christopher Waller, who have been on an independent streak recently) voted with them — were unable to decide the outcome of the Open Market Committee meetings.
If Powell remains on the board and remains a talisman for the Fed’s independence, the likelihood of rate cuts in the face of rising inflation will become even less likely.
For now, the clock is ticking louder on the timeline for Warsh’s appointment and the opening of a new front in the long-running feud between Trump and Powell.
This situation has not yet disturbed investors and financial markets.
If the threat of Trump’s ambitions to the Fed’s independence appeared more realistic, the consequences for the bond market in particular (the market that the administration has tapped to refinance ever-increasing levels of maturing debt while adding new debt and interest rates not seen in the post-World War II era) would have been threatening and potentially destabilizing.
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Stephen Bartholomeusz is one of Australia’s most respected business journalists. He was most recently co-founder and deputy editor of the Business Spectator website and associate editor and senior columnist at The Australian.Connect via email.
