The Federal Reserve raised interest rates this week. Federal Reserve Chairman Jerome H. Powell made the announcement on December 19 (via NYT):
The Federal Reserve raised its benchmark interest rate on Wednesday and signaled that it expects additional rate increases next year in a display of measured confidence in the economy that came despite financial market worries and political pressure to suspend rate increases.
Jerome H. Powell, the Fed’s chairman, emphasized the continued strength of economic growth at a news conference after the announcement. He acknowledged new strains in recent months, including weaker growth in Europe and China and a downturn in stock prices, and he said the Fed expects slightly slower domestic growth and fewer rate increases next year.
But he strongly defended the Fed’s decision to increase rates.
The Fed’s decision also rebuffed President Trump, who has broken with the practice of his predecessors by loudly and publicly campaigning for the Fed to keep rates low to continue stimulating the economy. “Feel the market, don’t just go by meaningless numbers,” Mr. Trump urged in a tweet earlier on Tuesday.
Asked about Mr. Trump’s advice, Mr. Powell said it “played no role” in the Fed’s decision.
“Nothing will deter us from doing exactly what we think is the right thing to do,” he said.
The decision to raise rates for the fifth consecutive quarter, by a unanimous vote of the Federal Open Market Committee, amounted to a rejection of the view that the Fed should continue to stimulate the economy in the hope of increasing employment and wage gains. The benchmark rate will now sit in a range from 2.25 percent to 2.5 percent, abutting the lower end of what Fed officials consider the neutral zone: the region in which rates would neither stimulate nor restrain the economy.
BREAKING: Trump has discussed firing Federal Reserve chief Jerome Powell as his frustration has intensified after this week’s interest-rate increase and months of stock-market losses.— Jennifer Jacobs (@JenniferJJacobs) December 22, 2018
Advisers close to Trump aren’t convinced he will try to do it, but say he wants to.
Trump has talked privately about wanting to fire the Fed chair many times in past few days.— Jennifer Jacobs (@JenniferJJacobs) December 22, 2018
Any such attempt would have potentially devastating ripple effects on markets, undermining investors’ confidence in Fed’s ability to shepherd the economy without political interference.
It’s unclear how much legal authority the president has to fire Jay Powell.— Jennifer Jacobs (@JenniferJJacobs) December 22, 2018
And at least one of Trump’s economic advisers, Kudlow, has said a president can’t fire Federal Reserve chair without cause.
That hasn’t stopped Trump from expressing his desire to get rid of Powell.
Well, Bloomberg is reporting that President Trump is reportedly furious over the move. It’s to the point where he’s considering firing Powell. The rumor mill is spinning. It very well could be true. And it wouldn’t shock me in the slightest that Trump is angered by the Fed’s decision to raise interest rates, along with his desire to boot Powell. At the same time, how many stories about this White House turn out to be patently false or just turn out to be something else. This is an administration that likes to mess with the media—and this story could very well be confirmed in the coming days. In Bloomberg’s story, the reports are that aides are telling the president that firing the Fed chair could bring more chaos to the stock market. Also, the White House’s legal authority to remove the Fed chair is murky:
President Donald Trump has discussed firing Federal Reserve Chairman Jerome Powell as his frustration with the central bank chief intensified following this week’s interest-rate increase and months of stock-market losses, according to four people familiar with the matter.
Advisers close to Trump aren’t convinced he would move against Powell and are hoping that the president’s latest bout of anger will dissipate over the holidays, the people said on condition of anonymity. Some of Trump’s advisers have warned him that firing Powell would be a disastrous move.
Yet the president has talked privately about firing Powell many times in the past few days, said two of the people.
Any attempt by Trump to push out Powell would have potentially devastating ripple effects across financial markets, undermining investors’ confidence in the central bank’s ability to shepherd the economy without political interference.
It’s unclear how much legal authority the president has to fire Powell. 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.
Stay tuned I guess.