U.S. Federal Reserve Governors Jeremy Stein, left, and Jerome Powell, listen during an open meeting of the Federal Reserve Board in Washington, D.C., U.S. (Photographer: Andrew Harrer/Bloomberg)

Powell Has a Lot to Lose, Little to Gain in Trump Sit-Down

(Bloomberg) -- Of all the holiday gatherings Jerome Powell gets invited to, a sit-down in the Oval Office might be one of the last he’d want to attend.

Just days after President Donald Trump blamed the Federal Reserve chairman for the stock market’s December swoon and discussed with aides his desire to fire him, White House staff are reportedly working to set up a meeting between the two men.

While some Fed watchers said such a confab could ease tensions, most warned it might be a minefield for Powell, either creating the impression the Fed is giving in to presidential pressure, or simply generating confusion over what gets discussed.

Powell Has a Lot to Lose, Little to Gain in Trump Sit-Down

“This is a very dangerous meeting,” said Mark Spindel, the head of Potomac River Capital, a Washington investment fund.

Coming amid a massive market sell-off and soon after a bevy of attacks on Powell from Trump, a meeting might only put the Fed in an even tougher spot, Spindel said. “Could I imagine a kiss and make up in the Rose Garden? Yes,” he said. But the president could also “offer his own read-out of what happens,” as he has after other meetings.

Donald Kohn, a former Fed vice chairman under Ben Bernanke, agreed a meeting would carry plenty of peril for Powell.

“The downside is not the meeting itself, but what happens afterwards,” said Kohn, a senior fellow at the Brookings Institution in Washington. “The risk is that the president interprets what he hears and then repeats something publicly that is not entirely consistent with what the chair wanted to convey,” he said.

With nine rate hikes in three years, the Fed is trying to balance the risks of moving too fast and squelching the U.S. expansion and moving too slowly, allowing the economy or financial markets to overheat. Trump has railed against rate hikes since July because inflation is tame. His ire hit a new level after the Fed hiked for a fourth time this year on Dec. 19, a move that further depressed an already sliding stock market.

Two days later, Bloomberg News reported that Trump had spoken with aides about firing Powell, triggering even worse pain for stocks. The S&P 500 Index fell on Dec. 24 to its lowest since April 2017. It has since rebounded slightly but remains down almost 10 percent this year and about 17 percent since Sept. 20.

That’s angered the president, who has encouraged Americans to judge his performance by the size of their retirement accounts. On Christmas Eve he continued to blame the Fed, tweeting, “the only problem our economy has is the Fed.”

The constant pressure has forced Powell to regularly reassure markets that Fed officials operate independent of politics. That means they will neither stop raising rates at Trump’s behest nor continue hiking in order to demonstrate their independence.

Trump is “changing the debate about what monetary policy should be,” said George Washington University professor Sarah Binder. “It just raises these doubts about how insulated the Fed can be from these kinds of pressures.”

Powell Has a Lot to Lose, Little to Gain in Trump Sit-Down

Some senior administration officials appear to understand the risks of undermining the Fed and have sought to contain the controversy. Trump’s incoming chief of staff, Mick Mulvaney, said Dec. 23 that Trump “now realizes he does not have the ability” to fire a Fed chairman. On Dec. 26, Kevin Hassett, chairman of the White House Council of Economic Advisers, told reporters that Powell was “100 percent” safe in his post.

A report that White House staff hoped to set up a Trump-Powell meeting appeared in The Wall Street Journal on Dec. 23.

Since Bill Clinton, presidents have refrained from criticizing the Fed in public and generally resisted pressuring the central bank behind the scenes. Still, meetings between a Fed chair and president were not unheard of. Alan Greenspan, Bernanke and Janet Yellen all attended such gatherings, typically to brief the president on the U.S. economic outlook, deal with a crisis or discuss their reappointment or departure.

Even in the current, rancorous circumstances, a meeting now has some potential upside for Powell.

“The opportunity for Jay is that he gets a chance to confront his chief critic and enhance the president’s understanding of why the Federal Reserve is doing what it’s doing,” Kohn said.

Hassett said “the two of them are great guys” who would get along if they were to meet and talk things through. “The president loves to listen to reason, to arguments, to analysis, and Jay does too. So I think they would have a very productive dinner were they to meet,” he told Fox Business Network on Thursday.

Some kind of rapprochement would be good for investors, according to Diana Amoa, a senior portfolio manager at JPMorgan Asset Management.

“To the extent the two can meet and reconcile this and find a way forward where we don’t look to Twitter, markets can start focusing on fundamentals again. I think that’s a positive,” she said Friday on Bloomberg Television.

Adam Posen, president of the Peterson Institute for International Economics in Washington, counseled Powell not to challenge the president, even if Trump follows the meeting with a mischaracterization of what was discussed.

“The Fed can just be factual,” he said. “It’s not their job to correct other people, it’s their job to repeat what their message is.”

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