Could President Trump Fire Jay Powell?
Author: Greg Valliere
May 2, 2019
NOW THAT DONALD TRUMP HAS THE ATTORNEY GENERAL HE ALWAYS WANTED, could the president instruct William Barr to produce a legal rationale for firing Jay Powell? The Fed Chairman surely disappointed Trump yesterday by stating the obvious — there’s no Fed rate cut in sight, let alone the absurd 100 basis point reduction that Trump is seeking.
ONE THING IS SURE: Trump’s antipathy toward Powell is real; the president said last year that the greatest threat to his re-election is not Robert Mueller; the greatest threat, Trump said, is Powell. After yesterday, it’s clear that the Fed sees a solid economy with only “transitory” inflation concerns that probably will subside — hardly a prescription for a rate cut.
TRUMP SHOULD BE PLEASED with an economy that will grow by at least 2-1/2% this year, with no recession in sight. But that’s not enough; he wants a 4% GDP growth pace and is willing to do anything to get it — signing a trade deal with China, talking down the dollar, spending more money, perhaps even proposing another tax cut, as he did before last fall’s congressional elections. But monetary policy is the key issue, and Trump wants it to be much more accommodative.
POWELL STATED ON “60 MINUTES” during the winter that he won’t step down, and that Trump doesn’t have the authority to fire him, but we’re not sure about that. The laws are vague, although a sentence in the Federal Reserve Act says the chairman could be dismissed for “cause.” What would constitute “cause” is unclear, although laws covering other independent agencies define it as as “inefficiency, neglect of duty, and malfeasance in office.”
ENTER WILLIAM BARR: He’s quite the Trump loyalist, willing to say anything to cover for the president, and he might have some time on his hands after Mueller testifies later this month. Debate on a contempt of Congress resolution is probably the worst outcome Barr faces, and it would be largely meaningless. So could Barr spend some time later this year devising the legal rationale for Trump to fire Powell?
HERE’S A PLAUSIBLE SCENARIO: Suppose the economy continues to accelerate (let’s take a careful look at tomorrow’s jobs report), and higher wages generate concern about inflation by late summer. We have argued for weeks that the enormous monetary and fiscal stimulus in the pipeline could actually raise concerns about an over-heating economy, which could prompt Fed officials to consider a rate hike by winter. How would Trump react?
WE THINK TRUMP WOULD TAKE A SERIOUS LOOK at firing Powell early next year if the Fed raises rates — prompting an epic legal battle that would quickly move to the Supreme Court, where the president now has plenty of allies. Forget about all the implications — market concerns about the Fed’s independence, the unwillingness of the Board of Governors to bend on policy, etc. The only thing that would matter to Trump is sending a signal to voters that he wants strong economic growth.
THE LOGICAL RESPONSE TO THIS SCENARIO is that firing Powell would be reckless and would confuse markets here and abroad. But logic doesn’t always apply to this outside-the-box president, who surely is thinking about firing Powell. Trump may be eager for a potential brawl — he loves brawls — that might help him win re-election.
The views expressed in this blog are provided as a general source of information based on information available as of the date of publication and should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities. Speculation or stated believes about future events, such as market or economic conditions, company or security performance, or other projections represent the beliefs of the author and do not necessarily represent the view of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and AGF accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. Any financial projections are based on the opinions of the author and should not be considered as a forecast. The forward looking statements and opinions may be affected by changing economic circumstances and are subject to a number of uncertainties that may cause actual results to differ materially from those contemplated in the forward looking statements. The information contained in this commentary is designed to provide you with general information related to the political and economic environment in the United States. It is not intended to be comprehensive investment advice applicable to the circumstances of the individual.
AGF Investments is a group of wholly owned subsidiaries of AGF Management Limited, a Canadian reporting issuer. The subsidiaries included in AGF Investments are AGF Investments Inc. (AGFI), Highstreet Asset Management Inc. (Highstreet), AGF Investments America Inc. (AGFA), AGF Asset Management (Asia) Limited (AGF AM Asia) and AGF International Advisors Company Limited (AGFIA). AGFA is a registered advisor in the U.S. AGFI and Highstreet are registered as portfolio managers across Canadian securities commissions. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. AGF AM Asia is registered as a portfolio manager in Singapore. The subsidiaries that form AGF Investments manage a variety of mandates comprised of equity, fixed income and balanced assets.
About AGF Management Limited
Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. AGF brings a disciplined approach to delivering excellence in investment management through its fundamental, quantitative, alternative and high-net-worth businesses focused on providing an exceptional client experience. AGF’s suite of investment solutions extends globally to a wide range of clients, from financial advisors and individual investors to institutional investors including pension plans, corporate plans, sovereign wealth funds and endowments and foundations.
For further information, please visit AGF.com.
© 2019 AGF Management Limited. All rights reserved.
