“I have no intention of firing him,” Trump told reporters in the Oval Office on Tuesday. “I would like to see him be a little more active in terms of his idea to lower interest rates,” he added. The de-escalation drew an immediate thumbs up from Wall Street, as equity index futures jumped by 1.8 percent on resumption of trading on Tuesday evening. Stocks, bonds and the US dollar had all slumped on Monday following an Easter holiday weekend featuring repeated attacks by Trump on Powell for not further cutting interest rates since the president resumed office in January.
Meanwhile, Trump during the same question-and-answer volley with reporters expressed optimism that a trade deal with China could “substantially” cut tariffs, which also provided a boost for investors. He said a deal would result in “substantially” lower tariffs on Chinese goods, suggesting that a final deal will not “be anywhere near” current tariff rates. But he added that “it won’t be zero.”
The broadsides were often accompanied by threatening remarks, such as last week’s social media posting that Powell’s termination as Fed chair “cannot come fast enough.” Those threats spooked financial markets that view the Fed’s independence as underpinning its credibility as the world’s most influential central bank and a cornerstone of global financial stability.
But while Trump seems to have set aside those threats for now, his criticisms of Fed rate policy remain just as pointed.
“We think that it’s a perfect time to lower the rate, and we’d like to see our chairman be early or on time, as opposed to late,” Trump said.
Trump’s sour grapes with Powell date back to the Republican’s first term in the White House. Trump elevated Powell from a Fed Board of Governors member to the central bank’s head but was soon irritated by ongoing rate increases under Powell’s watch. Trump openly mused about firing Powell, but was ultimately dissuaded by his advisers. Whether Trump has the authority is unclear. Powell, for his part, insists that the Federal Reserve Act of 1913 that created the central bank will not allow it. Trump, meanwhile, has said that if he wanted Powell out, he would be gone “real fast.”
Indeed the law stipulates that the seven Fed governors, appointed by the president and confirmed by the Senate to staggered 14-year terms, can only be removed for “cause” – long thought to mean misconduct, not policy disagreement.
That said, the law omits reference to limits on removal from its description of the four-year term of the Fed chair, who is one of the seven governors.
Trump’s harsh rhetoric also had come alongside court cases now proceeding over his firing of officials from other independent federal boards and agencies. Those are being watched closely in Fed circles as potential proxies for whether Trump has the authority to fire Fed officials long presumed to be able to pursue monetary policy free from political influence.
The Fed lowered interest rates by a percentage point late last year to their current range of 4.25 percent to 4.50 percent, but has held them unchanged in the two policy meetings convened since Trump returned to the White House.
Fed policymakers are concerned that the aggressive tariffs rolled out by Trump since early February could rekindle inflation they’d already found harder than expected to return to their 2 percent target. At the same time, they worry their job could be complicated further if the tariffs slow growth and drive up unemployment at the same time they are pressuring up inflation.
The result is a wait-and-see posture regarding further rate cuts, though most policymakers still see some rate reductions as likely later this year.
Interest rate futures traders pared bets on Fed policy easing after Trump’s remarks, and now are pricing three quarter-point interest-rate cuts by year’s end, versus the four seen as earlier as more likely. (Reuters)
