William Dudley Says Powell Should ‘Protect’ Fed If Trump Ousts Him

(Bloomberg) -- Jerome Powell’s former Federal Open Market Committee vice chairman has some advice for the leader of the U.S. central-bank should the White House try to sack him: for the sake of the institution, don’t leave.

President Donald Trump has been talking with advisers about making an unprecedented attempt to remove Powell, Bloomberg News reported Friday. Treasury Secretary Steven Mnuchin said on Twitter on Saturday that Trump is not weighing such a move, and it’s unclear whether the president has the legal authority to make it. It might be possible to take away Powell’s “chairman” title, but he can only be fired from his role as a Fed governor for “cause” -- usually neglect or misconduct.

William Dudley Says Powell Should ‘Protect’ Fed If Trump Ousts Him

William Dudley, former New York Fed president and FOMC vice chairman, said he doubts Trump would try to remove the Fed chief.

But if he did, and if sticking around the Fed is legally possible, “my advice to him -- I would stay on as a governor,” Dudley said in a phone interview. “You have to protect the institution.”

If he stayed, Powell’s colleagues could elect him as chairman for monetary policy, even if he were no longer head of the Fed Board, according to University of Pennsylvania Fed historian Peter Conti-Brown.

Defend Independence

It’s not unfamiliar for current and former policy-makers to fiercely defend Fed independence. Research has shown that central banks that function free of politics can make decisions that are good for the economy in the longer run, even if that means inflicting short-term pain. Threats from heads of state to fire their central bankers is more common in less advanced economies than the U.S., such as Turkey.

The Fed is structured so that it’s insulated from politics, and ever since former President Bill Clinton’s administration the White House has left the Fed alone, at least publicly.

Trump has regularly violated that decades-old norm, sending tweets and giving interviews critical of Fed policy tightening. The central bank has lifted interest rates four times in 2018 to prevent a solid economy juiced with tax cuts from overheating.

Fed officials have remained quiet during the onslaught from Trump, repeating that they’re focused on doing the job that Congress has assigned them: sustaining stable inflation and maximum employment.

“Certainly the Fed doesn’t want to get into it with the president,” Dudley said, who retired from the New York Fed in June. “They have been silent on this -- and I think that is the right approach.”

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