US President Donald Trump wants to fire Jerome Powell, the Chairman of the Federal Reserve, for raising interest rates. Apparently, the Commander-in-Chief could perform this quite unprecedented action by a president against an independent body like this simply because he did not want the Fed to raise interest rates. If he does this, however, it could definitely undermine the entire US financial system that is already in a bit of turmoil.
President Trump has long been frustrated with Powell over the losses in the stock market in the past few months, which is not something Powell has power over. And the president’s frustration has intensified over the past several days, often discussing firing Powell “many times,” according to a recent report.
In his defense, the stock market is not doing well. The Dow Jones Industrial Average fell 7 percent this week. That might not seem like much, but it is actually the most dramatic drop the index has seen in at least the last ten years. What is more important, perhaps, is that this drop is most likely due to fears that the Fed is unnecessarily slowing down the economy, which is evident by the central bank raising its benchmark interest rate, Wednesday, for the fourth time this year.
Trump was very excited about the Dow Jones Industrial Average when it reached record highs earlier this year, but in all the index is down 9 percent in 2018. In addition, the Nasdaq Composite is also heading down to a bear market.
The President’s advisors continue to counsel him that firing the Fed chairman is not something that the president traditionally does. In fact, they are not even sure he has the legal authority to do so. While the Federal Reserve Act says that governors can be “removed for cause by the President,” it is not clear how that extends to the Fed chairman. Powell is a governor, so the Federal Reserve Act would extend to him, but the rules surrounding the firing of a leader are, at the very least, ambiguous.
The reason this is unprecedented and ambiguous has everything to do with the fact that the Fed is supposed to be its own, independent entity. It is not a government agency.