Trump says didn’t threaten to demote Fed’s Powell, but could

Bloomberg

President Donald Trump denied that he’d threatened to demote Federal Reserve Chairman Jerome Powell but said he’d “be able to do that if I wanted.” The president repeated his criticism of Powell’s actions as Fed chief in an interview with NBC’s “Meet the Press.”
“I’m not happy with his actions,” Trump said of Powell. “No, I don’t think he’s done a good job.” Trump has spent months criticising Powell, 66, whom he chose to replace Janet Yellen as Fed chair in 2018, for raising interest rates, in his view, too far and too fast.
“I didn’t ever threaten to demote him,” Trump told NBC. “I have the right to do that. But I haven’t said that.”
Trump told confidants that he believes he has the authority to replace Powell as Fed chairman, demoting him to the level of board governor, according to people familiar with the matter. Powell said that he intends to serve his full four-year term and that “the law is clear” on that issue.
Trump said the US economy is strong enough to “bull through” what he sees as the headwinds created by the
Fed’s four interest rate hikes in 2018 “but I’m not happy with” Powell’s actions.
“I had somebody that raised the rates very rapidly. Too much. He made a mistake. That’s been proven,” Trump said. By contrast, Trump said his predecessor, President Barack Obama, “had somebody” — Yellen — “that kept rates very low.”
“Obama was playing with funny money,” Trump said. “I’m playing with the real stuff.”
Trump’s strident attacks on the Fed in interviews and on Twitter are a departure from almost three decades of caution in the White House about making public comments on monetary policy, out of respect for the independence of the central bank.
The Federal Reserve Act provides explicit protection for Fed governors against removal by the president except “for cause.” Courts have interpreted the phrase to require proof of some form of legal misconduct or neglect of basic duties. A disagreement over monetary policy wouldn’t meet that bar.
It’s less clear, however, whether the president can demote a chair, removing him or her from the top position while leaving the person as a Fed governor.
Meanwhile, Powell, who’s vowed to protect the Fed’s independence, said that he expects to get a clearer a read on whether the economy needs easier credit “in the very near term.’’ He also refused to rule out the possibility of a half percentage point reduction.
“That’s just something we haven’t really engaged with yet,’’ he said when asked about a 25 or 50 basis point move.
“It will depend very heavily on incoming data and the evolving risk picture as we move forward.’’
Goldman Sachs Group Inc. now expects the Fed to cut by 25 basis points in both July and September and isn’t ruling out the possibility of a move of 50 basis points “if the news flow disappoints.” The need to get ahead of the bond market could be another reason to push Fed officials toward a bigger reduction, economists including Jan Hatzius wrote in a note.