Trump's Authority Over Possible Dismissal of Powell
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The ongoing political pressure on the Federal Reserve, particularly from the Trump administration, has raised concerns about the independence of the world's most important central bank.
Recent reports suggest that at least six Supreme Court justices would rule against the possibility of President Trump firing Fed Chair Jerome Powell. This decision, while not overruling a 90-year-old precedent, allows Trump to fire two members of other federal agencies' boards, sparking debate about the limits of executive authority.
The potential consequences of political pressure on the Federal Reserve are significant. According to experts, undermining the Fed’s independence could lead to market volatility and weakening confidence in the U.S. dollar’s status as the global reserve currency.
Steven Ricchiuto, Chief U.S. Economist at Mizuho Securities, warns that political pressure on the Federal Reserve could result in higher rates. Meanwhile, Felix Vezina-Poirier, a macro strategist, states that firing Powell would likely backfire by pushing long-term Treasury yields higher.
Investors, traders, and speculators are already pricing in their discomfort with the potential to undermine the independence of the central bank. This could lead to declines in risk-based assets (stocks, corporate bonds, etc.), increases in longer-term Treasury yields, depreciation pressure on the U.S. dollar in foreign exchange markets, and possible movement by global central banks to reduce holdings of U.S. assets in favor of alternatives such as gold.
The Office of Management and Budget has cited cost overruns for the project to renovate facilities in Washington D.C. as evidence of Powell's broad mismanagement of the central bank. However, the Federal Reserve is a uniquely structured, quasi-private entity that follows in the distinct historical tradition of the First and Second Banks of the United States. A six-member majority wrote that the Fed is tasked with maintaining the stability of the financial system and conducting monetary policy in the public interest.
The Federal Open Market Committee (FOMC), which sets monetary policy for the Fed, has resisted cutting rates outright, signaling concerns about the broader economic implications of politicizing monetary policy. Despite President Trump's public demands for rate cuts to reduce the federal deficit, the FOMC has maintained its stance, citing a strong labour market and low inflation.
The White House is exploring ways to lower interest rates, but the potential removal of Powell on dubious grounds linked to this pressure could further escalate tensions. This could lead to heightened uncertainty and volatility in capital markets, eroding trust in the Fed’s ability to act as an independent authority tasked with price stability and sustainable growth.
In summary, political pressure risks disrupting market stability, increasing borrowing costs over the longer term, and compromising the credibility of the Federal Reserve and the dollar’s global status. It is crucial for the Fed to maintain its independence to ensure the stability of the financial system and the U.S. economy.
[1] The Wall Street Journal, "Trump Wants to Fire Fed Chair Powell, Report Says", 2019. [2] The New York Times, "Trump’s Attacks on the Fed Could Have Far-Reaching Consequences", 2019. [3] The Washington Post, "Trump’s Pressure on the Fed Could Backfire", 2019. [4] Bloomberg, "Fed Officials Warn Trump of Risks in Pushing for Rate Cuts", 2019.
- The ongoing political pressure on the Federal Reserve is generating discussions in the realm of war-and-conflicts, as experts worry about the potential impacts on the financial system and global economy.
- In addition to the political tension surrounding the Federal Reserve, policy-and-legislation discussions on executive authority and the limits of presidential power, such as the case of firing Fed Chair Jerome Powell, have dominated general-news and crime-and-justice debates.
