Peter Conti-Brown is my coauthor on a paper in progress about negative interest rate law. I am grateful to Peter for permission to make his latest Wall Street Journal op-ed, “Can Trump Fire Jerome Powell? It’s a Political Question,” a guest post here. Here it is:‘This is a challenging moment for central banking,” Federal Reserve Chairman Jerome Powell said shortly after his February appointment. He wasn’t kidding. Weeks later, President Trump launched the first in a series of broadsides against the Fed. In recent months Mr. Trump has called the central bank “crazy” and “a much bigger problem than China.” The conflict has been mostly
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Peter Conti-Brown is my coauthor on a paper in progress about negative interest rate law. I am grateful to Peter for permission to make his latest Wall Street Journal op-ed, “Can Trump Fire Jerome Powell? It’s a Political Question,” a guest post here. Here it is:
‘This is a challenging moment for central banking,” Federal Reserve Chairman Jerome Powell said shortly after his February appointment. He wasn’t kidding. Weeks later, President Trump launched the first in a series of broadsides against the Fed. In recent months Mr. Trump has called the central bank “crazy” and “a much bigger problem than China.” The conflict has been mostly confined to harrumphing. But last month Mr. Trump told the Journal: “Let’s see what happens with Jay Powell.” Can he raise the stakes by forcing the chairman out?
He isn’t the first president to ask the question. More than 50 years ago, Lyndon B. Johnson had a similar conflict with Chairman William McChesney Martin. No one wanted more guns and butter than LBJ, and Martin, predictably for a central banker, stood in the president’s way. He saw Johnson’s program as a threat to price stability.
In 1965 Johnson asked if he could fire McChesney. No, Deputy Attorney General Ramsey Clark answered in a memo—for two reasons. First, members of the Fed’s Board of Governors “are appointed for a 14-year term and may be removed from office by the President only ‘for cause.’ ” The term “cause” was limited to “neglect of duty or malfeasance in office.” Because the Fed was independent, “lack of confidence or disagreement with policies or judgment” wouldn’t be enough.
Second, because of the curious governance structure of the Federal Reserve, Martin wore two hats: He was a governor and the chairman. As chairman, he had a four-year term that lacked explicit statutory protection. But the lawyers wrote that since that term “is prescribed by the statute it is reasonably clear that, once designated, the chairman cannot be removed” before the end of that term. Johnson didn’t pursue the issue, and Martin served until 1970, outlasting Johnson by more than a year.
That sounds like good news for Mr. Powell. Unfortunately for him, a lot has changed. For one thing, the Supreme Court has repeatedly limited Congress’s ability to restrict presidential control of independent agencies. In Free Enterprise Fund v. Public Company Accounting Oversight Board (2010), for example, Chief Justice John Roberts wrote for the court that “the President cannot ‘take Care that the Laws be faithfully executed if he cannot oversee the faithfulness of the officers who execute them.”
The PCAOB, a body created by the Sarbanes-Oxley Act of 2002, is different from the Fed. But the high court’s recent decisions and present composition suggest a skepticism toward the administrative state. Brett Kavanaugh, probably the federal judge most skeptical of limitations on presidential power over administrative agencies, will likely move the court strongly in an antiadministrative direction.
Further, the lawyers were probably wrong in 1965 about the implications of the chairman’s four-year term. In 1976 Congress passed a law establishing a 10-year term for the director of the Federal Bureau of Investigation. As with the Fed chairman, that statute does not expressly prohibit the president from removing the FBI director at will. Under the Justice Department’s logic in 1965, it would follow that the president lacks the authority to fire the FBI director except for cause. But both Bill Clinton and Mr. Trump fired their FBI directors before the term expired. The Fed is different from the FBI in a lot of ways—but probably not in this one.
Mr. Trump, Mr. Powell and the public are unlikely to see a judicial resolution to this question. Waiting on the Supreme Court to resolve uncertainty about the control of the Federal Reserve would be devastating for the Fed’s credibility and inject substantial uncertainty into the global economy. In the face of such turmoil, either Mr. Trump or the Fed would blink. In other words, despite all kinds of law around the Fed, conflicts between the central bank and the president are always and everywhere political phenomena.
We’re now entering the second act of this drama. How the play ends depends not only on Donald Trump and Jay Powell, but Congress and the political process. If Americans and their representatives embrace Mr. Trump’s campaign against the Federal Reserve’s independence, no law will protect it.
Mr. Conti-Brown, an assistant professor at the University of Pennsylvania’s Wharton School of Business, is author of “The Power and Independence of the Federal Reserve” (Princeton University Press, 2016).
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