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President Trump stepped up his attacks on the Federal Reserve this week, but said he would not dismiss central bank president Jerome Powell, leaving some observers wondering if it would even be possible to do so. Here are some questions and answers:
The law is somewhat vague on this issue. The Federal Reserve Act, as amended in 1935, stipulates that Fed governors may be dismissed by the president "for cause".
Does a dispute over a policy meet the "for cause" threshold?
"The cause" is not defined in law, but it has been interpreted in other cases as meaning "inefficiency, negligence in duty or malpractice," said Peter Conti-Brown, a professor at the University of Toronto. University of Pennsylvania, who wrote Independence of the Fed.
In the past, have the presidents tried to dismiss the president of the Fed?
After a dispute with Fed Chairman William McChesney Martin in 1965, President Lyndon Johnson asked the Department of Justice if he could dismiss a governor of the Fed's board of directors. His lawyers informed him that his disagreement with politics was not a valid "cause" of dismissal, according to Robert Martin Bremner's biography.
How did the courts interpret the "cause" test in other presidential dismissals?
The legal standard of "for cause" dates back to the New Deal, when President Franklin D. Roosevelt attempted to fire William Humphrey from the Federal Trade Commission for failing to aggressively defend his policy. Mr. Humphrey still came to work anyway.
The case culminated in the Supreme Court. Mr. Humphrey died before the decision was made and the executors of his estate continued the case. The court ruled against the White House and singled out executive executives, who may be dismissed for whatever reason, and quasi-legislative representatives, such as a FTC commissioner – or presumably a Fed chairman – who could be revoked only for certain reasons by the Congress.
Have the courts suggested limits to these restrictions?
Yes. In January, a federal court of appeal upheld the constitutionality of the Office of Consumer Financial Protection. In joining the majority, Judge Thomas Griffith, appointed by President George W. Bush, stated that Humphrey's executor had "only a minimal restriction of the power of dismissal of the President ", which would allow such dismissal simply for" ineffective political choices ".
The law says that the governors of the Fed can be dismissed for just cause. Does this apply to the president?
Even more troubling, the "for cause" stipulation of the Federal Reserve Act applies only to governors, who serve a 14-year term, and not to the Fed Chairman, who is a member of the Board. four-year term at the same time as the 14-year-old governor. .
A key question, therefore, is whether a court would provide the chair with the same standard as the governors for the chair, in addition to the question of what conduct exactly justifies a termination of employment "for just cause".
Why is the question coming now?
The question came up this week after Trump called the Fed's interest rate hikes "crazy", "loco" and "loss of control." Asked on Thursday, when signing a bill at an oval office, Mr. Powell, Mr. Trump said, "No, I will not fire him. I am just disappointed. "
How did the markets react?
Markets have largely brushed off Trump's latest criticism of the Fed as investors expect Central Bank officials to do the same, and they do not seem to fear he will replace Powell.
Even if Mr. Trump wanted to replace Mr. Powell and had to choose a member of the Fed's board of governors, it is highly unlikely that any of the other three members (or three other candidates waiting for confirmation by the Senate) take a monetary policy in a direction more suited to Mr. Trump's desire to lower rates.
If a president was upset enough to consider dismissing the Fed president, markets could become very worried about the growing threats to the central bank's independence to nullify the benefits that a president could seek by replacing the Fed's president. President.
If the president can not dismiss the Fed president, then what is the problem?
Even if Mr Trump does not envisage such action, persistent criticism of the Fed, opposing part of the public opinion to the central bank, could be damaging.
"The Fed is not helpless in this pas de deux, but it's not a fair fight," said Conti-Brown. "The Fed loses even winning because it loses by engaging at all."
President Trump has described the mistakes of the Federal Reserve's rise as "wrong," suggesting that the central bank was to blame after Wednesday's stock market crash. Photo: AP Images
Write to Nick Timiraos at [email protected]
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