President Donald Trump isn’t happy about the Federal Reserve.
He’s called the U.S. central bank “the biggest threat” to the U.S. economy. He’s compared its chair – Jerome Powell – to a golfer “who doesn’t know how to putt,” and most recently, to President Xi Jinping of China.
“My only question is, who is our bigger enemy, Jay Powell or Chairman Xi?” Trump tweeted Aug. 23.
Trump, Powell and Fed independence
Trump’s criticisms have revived an age-old conversation about Fed independence, and it’s made experts question whether Powell and his colleagues might have folded to political demands behind the scenes. Trump has long called for the Fed to cut borrowing costs and halt its normalization of the balance sheet, and they fulfilled those demands at the July rate-setting meeting.
But even though Trump’s not happy with the Fed – and specifically the chairman whom he appointed – he can’t do much about it. The Fed was designed to be independent from U.S. politics, and when the conversation comes up in public, Powell stresses that monetary policy is set without political input.
It’s clear, however, that the president does have a prominent pulpit when it comes to the central bank – and he may have more influence over the Fed than you might think.
What authority does Trump have over the Fed?
Here are all the ways in which a U.S. president can and cannot affect the Federal Reserve – and what authority the chief executive has over the chairman.
- A president can appoint – and technically fire – the Fed chair
- A president does appoint the majority of voting officials
- But a president is not the sole arbiter of who takes those seats
- A president can voice his concerns and participate in the conversation – and Trump’s not the only one who’s done it
- But a president cannot bar the Fed from raising interest rates
1. A president can appoint – and technically fire – the Fed chair
Trump nominated Powell to the post of chief central banker back in 2017. He could also be the one to take Powell out, technically.
Members of the Fed’s board of governors can serve a maximum of 14 years, pending a fresh nomination from the president and confirmation from the Senate at the end of each term. Governors serve two-year terms, while chairs and vice chairs’ terms last four years.
Fed chiefs, however, can serve any time that went unused by their predecessors. (Alan Greenspan, for example, was Fed chair for nearly 18.5 years because Paul Volcker only served as chair for eight).
But Section 10 of the Federal Reserve Act of 1913 specifies that governors can be “sooner removed for cause by the president.”
The Fed chair is considered a governor, meaning this provision likely extends to him or her as well, says Sarah Binder, professor of political science at George Washington University, who studies the Fed’s relationship with Congress.
What constitutes as a “cause,” however, is not exactly clear, though it likely doesn’t include a disagreement on the direction of interest rates.
“Just because the president doesn’t agree with your policy choices doesn’t mean he can dismiss you,” Binder says. “Powell’s response more than once has been: ‘I’m not going anywhere.’”
That’s at least the message Powell communicated in March during a wide-ranging interview on CBS’ “60 Minutes.” When correspondent Scott Pelley asked Powell whether Trump could fire him, Powell flat out said, “No.”
“The law is clear that I have a four-year term,” Powell said on the long-running television show. “I fully intend to serve it.”
No president has attempted to fire a Fed chief before using the “cause” provision, so no legal precedents have been set. (Though the Truman administration forced Thomas McCabe to resign after about three years as Fed chair).
But if a president did decide to kickstart a legal battle to oust the chief U.S. central banker, it’s likely that the courts will look to similar roles for illumination, such as the chairman of the Federal Trade Commission, says Pete Earle, a research fellow at the American Institute for Economic Research.
The legal standards surrounding the FTC chairman say that this official can only be removed for “inefficiency, neglect of duty or malfeasance in office.” Applying that to the Fed chair, however, might be a little more complicated, Earle says.
“Is raising rates a neglect of duty? I don’t see any court arguing that, especially when they’re hired for their policy and their academic expertise,” Earle says. “The Fed is charged with this duty of adjusting rates as it sees fit.”
When it comes to the current presidency, however, Trump has shown he’s not afraid to break from presidential precedence, Earle adds.
“Trump is going to be Trump,” he says. “If he decides to, no clause in Section 10 of the Federal Reserve Act or any sort of yelling by the media or backlash from Congress will stop him if that’s what he decides he wants to do.”