Constitutional question threatens Federal Reserve

Investment Analysis Clubs Macro Economic Trends and Risks
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This article is about whether the President can fire the head of an independent agency. The article doesn’t mention the Federal Reserve but the implication is obvious. Fed Chair Jerome Powell has said that he would fight any attempt of the President to fire him before the end of his term. The question will probably end up in the Supreme Court.

https://www.wsj.com/opinion/youre-fired-not-so-fast-trump-independent-agency-constitutional-law-03efb2fa?mod=panda_wsj_author_alert

‘You’re Fired’? Not So Fast

Court precedent may yet protect officials at independent agencies from at-will removal.

By William A. Galston, The Wall Street Journal, Feb. 18, 2025

Is it unconstitutional for Congress to make government agencies such as the Federal Reserve independent by restricting the president’s authority to fire their heads? The Trump administration is behaving as though that’s the case…

Under current law, the U.S. president can remove commissioners of many independent agencies, but only for inefficiency, neglect of duty, or malfeasance in office. Other reasons, such as policy disagreements, don’t justify removal before a commissioner’s term ends. These officials differ from cabinet and subcabinet officials, who continue serving at the president’s discretion. …

Since taking office, President Trump has taken actions that seem aimed at expanding his power in this arena by firing several officials who enjoy legal protection against at-will removal. … But a Supreme Court case decided 90 years ago stands in the president’s way…

[snip section about how in 1790, during the First Congress, Secretary of State Alexander Hamilton, Rep. James Madison, President George Washington and Secretary of State Thomas Jefferson set up a commission that resembled today’s Federal Open Market Committee. These guys basically helped write the Constitution so they should be the ultimate word on constitutionality.]

[end quote]

The Federal Reserve was set up as an independent agency precisely because it is meant to counter the President’s desire – which is ALWAYS to cut the fed funds rate, regardless of party. An egregious example of a Fed Chair who bent to a president’s will was Arthur Burns who helped set off the tenacious inflation in the 1970s by cutting the fed funds rate under pressure from President Richard Nixon.

If President Trump succeeds in firing Jerome Powell and installing a compliant Fed chair – look out below!! The markets will respond quickly and harshly. Trump is sensitive to market movements so it would be very unwise of him to do this. Politics is supposed to be a chess game where the players think ahead. It’s not supposed to be “Move fast and break things” – but that’s what’s happening now.

Wendy

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Seems that the tariffs, if implemented, would fuel inflation anyway. So what is the best financial protection against inflation, bank deposits, stocks, or metals?

Comparative-Returns
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Steve

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Not to worry - Trump knows interest rates at least as well as Erdogan:

Last month, just a few days into his current term, Trump said he believed he knew more than Powell about monetary policy. “I think I know interest rates much better than they do, and I think I know it certainly much better than the one who’s primarily in charge of making that decision [which I appointed myself, SB]” Trump told reporters in the Oval Office in January.

/ scsm

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I’m struggling to figure out where the safe haven is, in that scenario, other than $GLD and $SLV.

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The chart above, shows metals did best in the 70s, followed by houses. It was illegal for USians to hold physical gold before 1974, to the gold market could have been overheated in the mid 70s, due to the newly opened market.

Steve

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That would seem to be a loophole one could drive a truck through.

DB2

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Powell is mentally and emotionally larger than Trump. Powell has the law on his side. He will shrug off a legal battle.

Trump will drop it at some point. He drops all of his interests at some point.

Oh wow something flashy just went by.

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I still remember December 2018 when he absolutely caved to The Don, and quickly. Has he grown a spine since?

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Don made the right call at that time.

I do not even remember what that call was. I just remember my impression at the time.

Don has read books. The best books. I just do not think they are the best books. I can not guarantee that he retained anything.

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@bjurasz I’ve asked myself the same question.

Pure speculation… I think Powell would resist this time because he has pulled off a soft landing which many economists thought would be impossible. He has until 2026 to cement his legacy which will live forever in economic history books. If he sticks to his guns he will achieve the honor we give to Volcker (though President Carter was much gentler than Trump). If he caves he will earn the opprobrium we give to Arthur Burns.

Powell has said he would go to court to defend his tenure at the Fed. I think he would. Having made that determination, in his place I would take pleasure in thumbing my nose at President Trump who humiliated him on Twitter in the crudest way.

Wendy

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TI has all the resources of the DoJ at his disposal, to execute any “policy” he decrees.

Steve

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Trump has the supreme court on his side.
The law doesn’t matter.

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Not necessarily.

most of those employees were rated as being “exceptional” performers by their supervisors.

“Employee has demonstrated exceptional performance and has no conduct issues,” supervisor reviews read for many of the laid-off workers.

“These letters that we’re sending these employees, I feel so bad because they’re lying,” the person familiar said. “All of them, pretty much, were exceptional performers. It’s just crazy to me.”

These employees will likely sue for wrongful termination.

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…an opprobrium I also give to Greenspan, who bungled what Volker had achieved, drastically weakened necessary oversight of markets, and presided over the biggest financial derivatives bubble kaboom impacting my investing life.

I am very lucky I fled the building before the roof caved in.

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The administration would probably claim that the supervisors who gave the “exceptional” ratings were guilty of a thought crime, of some sort, so their evaluations were “tainted by the thought crime”, so should be disregarded.

Steve

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To misappropriate a quote from “My Cousin Vinny”, “I may have been mistaken.” Or to use Greenspan’s own words:

"I made a mistake in presuming that the self-interests of organisations, specifically banks and others, were such that they were best capable of protecting their own shareholders and their equity in the firms,"

He always used a lot more words than necessary. “I screwed up” would have sufficed.

Me too.

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This current bubble is worse.

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…and still growing. If this is a planned humungous pump and dump, then it is so cleverly devised and managed we should simply give control of everything over to the dudes doing it. If this is an unplanned side-effect of some other even more potent agenda then

Duck and Cover!

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Just incompetent

TI doing it again