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How Trump's Attacks On The Federal Reserve Impact The Organization's Independence


All right, let's pivot next to the economy and the Federal Reserve and ask, how unusual is it for a U.S. president to publicly question, even publicly harangue his Fed chairman? It's a question prompted by President Trump's escalating attacks on Jerome Powell. This week, even as Trump's advisers were working to calm markets, the president was tweeting, quote, "the only problem our economy has is the Fed."

Well, Nick Timiraos covers the Fed for The Wall Street Journal, and he joins me now. Hey there, Nick.

NICK TIMIRAOS: Hey, Mary Louise.

KELLY: So what kind of precedent is there for a U.S. president to attack the Fed and its chair?

TIMIRAOS: It's not unusual for presidents to be unhappy with the Fed or even to privately pressure the Fed chairman. It is unusual, however, to see the kind of, as you called it, public haranguing of a Fed chairman by the president. We haven't had a president in 25 years that even publicly questioned the Fed. We really haven't seen anything like what we're seeing right now from Donald Trump, especially considering that he named Jay Powell to lead the Fed a year ago.

KELLY: Right. This is his own pick to chair the Fed.

TIMIRAOS: His own pick to chair the Fed - the economy by even the president's account is doing well, and interest rates are historically low even though the Fed has raised interest rates by a percentage point over the past year. At 2 1/2 percent, that's still historically low. So it's unusual to see all of the different things that we're seeing, and it's possible that markets are reacting because they're concerned at going down this slippery slope of, gee, if you're going to fire the Fed chairman, then what does that mean for the stability of markets, our confidence in the administration, the credibility of the Fed? All of that comes into question.

KELLY: Your colleague Greg Ip has a column in today's Wall Street Journal in which he argues that the consequences of these attacks go beyond whatever immediate impact they may have on the market, that they, in his view, undermine faith in the independence of the Fed. What do you think?

TIMIRAOS: Greg's probably right. The independence of the Fed means that you have a central bank that will not make its decisions based on political considerations. And that's important to markets because in the past when we've seen inflation, we want to know there is going to be a central bank committed to bringing inflation down even if it's politically unpopular for them to do so.

KELLY: Does it make a difference if the president is ultimately proven right? As you know, a lot of investors are with him on this. They don't want the Fed to raise rates either.

TIMIRAOS: That's a great point. Donald Trump could be right about this. But let's play out this scenario. What if he decides to try to replace Jay Powell as chairman? The law is ambiguous. The law says that governors - there are seven governors at the Fed board - can only be removed for cause, which is interpreted as malfeasance or impropriety. But it's silent on whether he could try to remove the position of chair from Jay Powell, who is also a governor, and designate somebody else. The law just - it's not decided, so...

KELLY: So that's an open question. We don't know whether legally the president could fire his Fed chairman or not.

TIMIRAOS: We don't know. I mean, the White House has come out and said the president now believes he doesn't have the authority to do this because the idea of it is so upsetting to markets which are already of course very volatile right now.

KELLY: That's fascinating. I'll inject into this that one of the president's economic advisers, Kevin Hassett, is on record saying Powell's job is safe. Let me play a little snippet of where Hassett got asked about this by NBC.


UNIDENTIFIED PERSON: Is the Fed's chairman's job safe?

KEVIN HASSETT: (Laughter) Yes, of course, a hundred percent yes.

UNIDENTIFIED PERSON: One hundred percent - Fed's chairman's job is not in jeopardy by this president.

HASSETT: Absolutely. That's correct, yes.

KELLY: One hundred percent, he says. Do we have any reason to doubt that? Is Powell's job safe?

TIMIRAOS: It's hard to tell with this administration. But Kevin Hassett certainly is a prominent official, and so it seems fair to take his word. If the president were to go back on it, then you now have two top officials - the treasury secretary, Steven Mnuchin, and the CEA chair, Kevin Hassett - whose credibility would be quite badly undermined.

KELLY: Nick Timiraos - he is economics correspondent at The Wall Street Journal. Thanks so much for your time.

TIMIRAOS: Thank you, Mary Louise. Transcript provided by NPR, Copyright NPR.