President Trump is taking the firing of Federal Reserve Chairman Powell under consideration “after the latest rate hike,” according to an article citing unnamed sources that was posted on Bloomberg this morning.
It is noted in the article that Trump’s legal authority to fire the Chairman is unclear. Based on my research, however, language providing the authority for the President to dismiss the Chairman and other Board Members has been included in the Federal Reserve Act since the amendments that established the Federal Reserve Open Market Committee in 1932. My research is posted here. Below is an excerpt of 12 USC §242 that includes the authority.
12 USC §242 – Ineligibility to hold office in member banks; qualifications and terms of office of members; chairman and vice chairman; oath of office:
Upon the expiration of the term of any appointive member of the Federal Reserve Board in office on August 23, 1935, the President shall fix the term of the successor to such member at not to exceed fourteen years, as designated by the President at the time of nomination, but in such manner as to provide for the expiration of the term of not more than one member in any two-year period, and thereafter each member shall hold office for a term of fourteen years from the expiration of the term of his predecessor, unless sooner removed for cause by the President…
The nagging complication for Trump here would be that his authority to fire Fed Governors is modified by the word “cause,” which implies that, unlike most appointed cabinet and other White House positions, they do not serve at the pleasure of the President. He probably could not fire only Powell if his cause is something like tone deaf policy choices. If his cause is based on his view of a policy choice, as in the rate hike that occurred this week, he would have to fire all of them because they all voted for the policy, and White House legal staff would have the challenge of providing proof that the policy choice in question was indeed a bad choice.
In terms of legal authority to fire Board members, any attempt to exercise it should be used sparingly and be limited to extraordinary events where the need is obvious and politically supported. Developments in monetary policy approximately a decade ago and for some time thereafter likely warranted the exercise of such authority, while in view of the circumstances of recent NGDP growth patterns, cause based on policy performance likely does not exist in the case of Donald’s well publicized beefs. Should Trump pursue this course lightly, based on unfounded grounds and in the absence of political consensus, at the end of the long legal battle over that authority, it could very well be determined that the President’s authority to fire Board members is more limited than meets the eye, and in cases where exercise of this authority is the only remaining remedy for the extraordinary, the President may be rendered completely helpless to do anything at all.
Tying back to my last post expressing grief over Trump’s poor policy choices in general with results that are quickly approaching the level of disaster posed by the tough-act-to-beat Bernanke Fed in aggregate, it is deeply regrettable that, for Trump’s part, the person who should be fired is the one staring back at him in the mirror.
In terms of job performance, Powell is doing fine. Trump is not.