OPINION:
Attempting to remove or drive Federal Reserve Chairman Jerome Powell from office before his term is up in May is bad for the country and doesn’t serve President Trump’s economic goals.
The Federal Reserve is a quasi-private institution structured to make decisions substantially insulated from political interference.
The 12 regional Federal Reserve banks are owned by their member banks. The presidents are chosen by their boards of directors but are subject to the approval of the seven-member board of governors in Washington. Those seven, including their chair, are nominated by the president and confirmed by the Senate.
For a person like Mr. Trump, who is used to running an organization and doesn’t want advice that contradicts his thinking, it’s a system designed to frustrate.
Subject to jawboning from the Oval Office, Congress, and influential private leaders and analysts, the Fed’s Open Market Committee determines interest rate policy and the Fed’s holdings of Treasurys and other government agency bonds.
It prints money to purchase those securities, influencing market interest rates and inflation.
The Open Market Committee’s voting members are the seven governors, the president of the Federal Reserve Bank of New York and four other regional bank presidents who serve on a rotating basis.
Mr. Powell can be removed only for cause — malfeasance, neglect of duty or gross misconduct — hence the controversy over the costly renovations and expansion of the Fed’s headquarters.
Restoring and expanding historic buildings routinely costs more than expected, as problems in walls, mechanical systems and soil emerge. Harping about those is a loser for Mr. Trump.
Being so public about his frustrations with Mr. Powell is also self-defeating.
As with the Supreme Court, senators closely scrutinize board nominees. During Mr. Trump’s first term, the Senate declined to approve Judy Shelton.
Understandably, Mr. Trump wants lower interest rates to ease the burden of interest payments in the federal budget and lower business and consumer borrowing costs. The latter could help compensate for the short-term drag as the economy adjusts to new tariffs.
He could nominate National Economic Council Chairman Kevin Hassett or Kevin Warsh, a former member of the Federal Reserve’s board of governors. Both support lower interest rates.
Mr. Trump’s labeling Mr. Powell as “Mr. Too Late” and drawing contenders for the top job into the dump Mr. Powell campaign only increases the scrutiny they should receive if nominated.
Messrs. Hasset and Warsh have reversed public positions to better align with Mr. Trump, raising questions about the quality of their judgment and fitness for one of the most powerful positions in Washington and the financial world.
Their commitment to Fed independence and policy decisions based on economic and financial market conditions, as opposed to presidential whims, will now become subject to the highest scrutiny.
So far, Mr. Trump has been able to steamroll Congress: for example, tax breaks for tip and overtime income that can’t be justified on economic or equity grounds and should have never been approved.
The Senate could grow a spine and oppose the nomination of Messrs. Hasset, Warsh or anyone else who joined Mr. Trump’s purge Powell crusade.
The Fed chair is not a dictator.
The position holds great influence, but policy decisions are taken by consensus — dissenting votes are infrequent — and subject to lively debate through the public speaking of Open Market Committee members and in private deliberations.
If most of the Open Market Committee perceives the chair as a marionette controlled by the Oval Office, it could eschew tradition by choosing a governor other than the chair of the Federal Reserve Board to head the committee.
The committee could even choose Mr. Powell if he stays on the board after his term ends.
Already, the size of federal deficits and the growing burden of interest payments in the federal budget are weighing on investors’ confidence about the safety of longer-term U.S. debt.
That’s silly.
The U.S. government borrows in dollars, and the Fed can print money to buy Treasurys as needed; therefore, the United States can’t default.
However, so monetizing the debt would drive up inflation and diminish the inflation-adjusted value of Treasury securities.
Attacking the Fed’s independence undermines investors’ confidence that it won’t resist monetarization. That erodes their confidence in the long-term real value of U.S. debt and raises the interest rates investors demand to hold it.
That’s the opposite of what Mr. Trump wants. Attacking Mr. Powell raises the interest burden imposed by the national debt.
Further, all this drama undermines international confidence in the dollar as the reserve currency. It could inspire foreign central banks to create an alternative, such as a stablecoin backed by a basket of major currencies and managed by an independent body in a neutral country such as Switzerland.
By removing Mr. Powell from office early or picking a hack to be his successor, Mr. Trump would compromise the integrity of the Fed and tarnish America and his legacy.
• Peter Morici is an economist and emeritus business professor at the University of Maryland and a national columnist.
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