The White House explored the legality of demoting Fed Chairman Jerome Powell in February, according to a report by Bloomberg News.
Citing people familiar with the matter, the report said the White House general counsel’s office weighed the legality of stripping Powell of his chairmanship of the central bank, and leaving him as just a Fed governor.
The review came after President Donald Trump spoke of firing Powell, the report said.
Bloomberg said it didn’t know the result of the administration’s review.
Asked about the report, Larry Kudlow, the director of the National Economic Council, said Trump is not planning to demote Powell but didn’t deny the report.
“It’s a six-month-old story,” Kudlow told reporters, according to Reuters. “It allegedly happened six months ago, and it’s not happening today, and therefore I have nothing to say about it. It is what it is.”
The report comes just a day ahead of a Federal Open Market Committee decision, and pressure from the White House to reduce interest rates. Economists expect the Fed to wait until July, at the earliest, to reduce rates.
Robert Hockett, a professor of law at Cornell Law School, told MarketWatch last fall that Trump could not fire Powell outright.
Similar to other independent regulatory agencies, like the Securities and Exchange Commission, the Federal Reserve Act, section 10.2, stipulates that a president can remove a Federal Reserve governor “for cause” rather than “at will.”
This is commonly understood as a severe, egregious or criminal act, “not a disagreement with the monetary policy they are pursuing,” Hockett said.
The law goes back to the 1940s, when President Franklin Roosevelt removed a member of the Federal Trade Commission and cited as a reason their divergent views of public policy. The Supreme Court unanimously reversed the firing, saying executives of independent agencies cannot be removed in their term of office except for cause. These agencies “must be free from executive control,” the court ruled.
Some advocates of executive power believe requiring cause to fire independent agency heads is unconstitutional and would like to find a case to bring the issue before the Supreme Court.
Michael Feroli, chief U.S. economist at JPMorgan Chase, said the Federal Reserve Act is more ambiguous about whether Trump could name a different governor as Fed chairman.
Feroli said such a move would be “very disruptive” for financial markets.
Theoretically, any new Trump nominee for Fed chairman would have to be confirmed by the Senate.
Mick Mulvaney, the acting White House chief of staff, said in an interview late last year that Trump “now realizes” he cannot sack the Fed chairman.
Stocks retreated from highs after the report. The S&P 500 index
still closed up nearly 30 points to 2,917 on hopes the Fed will soon cut interest rates.
Trump has been critical of Powell and the Fed since last fall. At first he wanted the central bank to hold off on more rate hikes. Now the president is advocating for rate cuts.
Trump had more angry words for Powell in an interview with ABC News that aired Sunday night.
“He’s my pick and I disagree with him entirely,” Trump said.
When asked if he was worried his criticism was putting Powell in a box, Trump replied: “Yes, I do. But I’m going to do it anyway because — I’ve waited long enough.”
Later Tuesday afternoon, Trump suggested that the demotion was still a possibility.
Asked by reporters if he still wanted to demote Powell, Trump replied: “Let’s see what he does.”
The president went on to complain he was not getting a “level playing field” with other countries, noting that the European Central Bank has a “much different stance” than the Fed.