A new risk at the Fed: Donald Trump’s power to fire Fed Governors

A new risk at the Fed: Donald Trump’s power to fire Fed Governors

Calling it “breaking with decades of presidential convention,” the New York Times reported last week on Donald Trump’s open criticism of recent Federal Reserve rate hikes. quoting him as telling donors at a  fund-raiser in the Hamptons:

that he had expected Mr. Powell to adhere to an easy-money monetary policy, by keeping interest rates low, when he nominated Mr. Powell in November to succeed Janet L. Yellen….

On Monday, Mr. Trump complained about the Fed chairman publicly, telling Reuters “I’m not thrilled with his raising of interest rates, no. I’m not thrilled.” Mr. Trump, in an interview, added “I should be given more help by the Fed” through more accomodative monetary policy….

Earlier this summer Trump had told an interviewer on CNBC: “I don’t like all of this work that we’re putting into the economy and then I see rates going up. I am not happy about it.”

Well, if there’s one thing we don’t expect from Donald Trump, it’s breaking conventions, right?

The independence of the Federal Reserve Chair and the other appointed Governors is theoretically protected by 12 U.S.C. Section 247, which provides:

Upon the expiration of the term of any appointive member of the Federal Reserve Board in office on the date of enactment of the Banking Act of 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.

[emphasis supplied]

In other words, the Chairman and all of the other appointed governors of the Federal Reserve have exactly the protection against being fired, except “for cause,” that covered FBI Director James Comey.

So, if Trump thought Fed rate hikes were harming his re-election prospects by slowing the economy, and the Fed insisted on raising rates anyway, do I think Trump would fire the Federal Reserve Chair? Or even all of the Governors?

In a heartbeat.