All the Ways Trump Can (And Can’t) Influence Powell’s Fed Policy
(Bloomberg) -- President Donald Trump isn’t happy that the Federal Reserve is raising interest rates. There’s not much he can do about it.
The central bank is intentionally insulated from day-to-day U.S. politics, with officials’ terms lasting as long as 14 years. The president appoints members to the Board of Governors in Washington, including the Fed chairman, and can only fire governors “for cause.” The Senate must sign off on replacements, so remaking the central bank by removal is an inherently risky strategy. That leaves the president with a more primary tool when it comes to influencing the Fed: complaining. Trump seems to be taking that route.
“The U.S. is raising rates while the dollars (sic) gets stronger and stronger with each passing day -- taking away our big competitive edge,” the president tweeted Friday, a day after laying into the Fed in a CNBC interview.
Here’s a rundown of what the executive office can and can’t do when it comes to influencing rate policy.
1. CAN: Hire, Fire
The Federal Reserve Act says governors may be “removed for cause by the President.” Since the chairman is also a governor, that presumably extends to him or her, but the rules around firing the leader are legally ambiguous, as Peter Conti-Brown of the University of Pennsylvania notes in his book on Fed independence.
The act doesn’t specify what “cause” means, and no Fed chief in the modern era has been subject to that provision, though Thomas McCabe was forced to resign after clashing with Harry Truman’s administration. William Miller served for just over a year before President Jimmy Carter moved him to the U.S. Treasury in 1979.
Presidents can and do pick someone else when the term of a sitting chairman ends. Trump himself chose Powell to replace Janet Yellen, whom he inherited from Barack Obama. The president can also appoint governors to the Fed board in Washington, which is an important power: the seven officials vote constantly and make up more than half of the 12-member Federal Open Market Committee.
2. CAN’T: Guarantee Doves
Interestingly, among Trump’s picks for the board to date -- Randal Quarles, Marvin Goodfriend, Richard Clarida, and Michelle Bowman -- none are known as decidedly dovish. Only Quarles has been confirmed by the Senate so far.
Even if Trump had nominated doves, they would have to make it past Republicans in the Senate to win confirmation, and many Senate conservatives tend to back a Fed focused on containing inflation rather than lowering unemployment.
3. CAN: Complain
Trump isn’t the first president to take issue with the Fed’s rate hikes, and his predecessors have met with varying success in actually influencing policy.
In December 1965, Lyndon Johnson famously summoned Fed Chairman William McChesney Martin to his ranch in Stonewall, Texas, to confront him over Martin’s decision to lift rates. Martin didn’t cave.
Not long after, President Richard Nixon demanded Chairman Arthur Burns goose the economy with low rates ahead of the 1972 election. When Burns didn’t immediately cooperate, the White House planted a false story in the press that Burns was seeking a big pay raise, according to a book by Nixon speechwriter William Safire. Eventually Burns relented.
Most recently, George H.W. Bush’s White House pushed Alan Greenspan behind the scenes on rates and openly called on the Fed to lower its benchmark in June 1992. Greenspan did cut rates 13 times over 1991-92, but slowed the pace of reductions in the latter year, to the White House’s annoyance.
Since President Bill Clinton’s tenure, executives have avoided talking about Fed policy. Trump isn’t sticking to that script.