◼ ECONOMICS Bloomberg Businessweek July22, 201931reportedbyBloombergNewsonDec.21.Advised
thathedoesn’thavetheauthoritytofirePowell
outright,thepresidentaskedWhiteHouselawyers
inFebruarytoexplorewhetherhecouldstriphim
ofhischairmanship,a legallydubiousmovethat
couldleadtoa messycourtbattle.AfterBloomberg
Newsreported this twist,Trump claimedon
June23 that he has the power to demote Powell.
During this period, the president’s assault on the
Fed took a turn. He’d already filled three openings
on the bank’s seven-member Board of Governors
and elevated Powell to the top job, picks that were
well received inside and outside the institution.
Clearly disappointed with their performance, how-
ever, he then began a concerted effort to fill two
additional openings with individuals who would
toe his line on interest rates. Candidates inter-
viewed for the governor job this year have been
asked whether they would support a rate cut if they
were on the board now, according to two people
familiar with the meetings.
According to one senior insider, Trump’s effort
to pack the Fed has spooked the central bank’s staff
and leadership far more than his public rantings.
At the very least, it could drag partisan politics
straight into the central bank’s closed-door meet-
ings on monetary policy. Worse, it could pose a
more elemental threat to the institution.
Judy Shelton, a former economic adviser
to Trump who’s among his latest central bank
picks, is the embodiment of all these fears. In
the same way that the president’s choices to lead
the Environmental Protection Agency and the
Consumer Financial Protection Bureau have sought
to undermine the missions of those agencies,
Shelton could bring a level of iconoclasm rarely, if
ever, seen at the Fed.
In the meantime, even an end to rate hikes
hasn’t bought Powell any peace. By January he was
backing away from further tightening as market
turmoil continued. A majority of Fed officials then
shelved projections for 2019 rate hikes in March
as the risks of a worldwide slowdown mounted,
in large part because of uncertainty caused by
Trump’s trade war. That’s when the president piv-
oted and began beating the drum for rate cuts.
The economy would be “like a rocket ship” if only
Powell & Co. heeded his call and began easing mon-
etary policy, he said this month.
Trump isn’t the first American president to bully
his Fed chair. Lyndon Johnson summoned William
McChesney Martin to his Texas ranch in 1965 for
a tongue-lashing during which, according to one
account, he shoved him while yelling, “Boys are
dying in Vietnam and Bill Martin doesn’t care.”And former Chairman Paul Volcker revealed in his
recent memoir that in 1984, Ronald Reagan ordered
him, through chief of staff James Baker, not to raise
rates. Yet since Bill Clinton, U.S. presidents have,
atleastpublicly,lefttheFedaloneindeferenceto
itsindependence.Trump,desperatetokeepthe
economy purring and the stock market soaring, has
laid waste to that tradition.
Ironically, he may have made it harder for the
Fedtogivehimwhathewants,becausePowelland
therestoftherate-settingFederalOpenMarket
Committeedon’twanttobeseenascavingtothe
president’sdemands.That’stheveryreasoning
PresidentClinton’seconomicteamusedinthe1990s
toconvincehimthatpressuringthen-Chairman
Alan Greenspan would be counterproductive. “If
thecaseis clearthattheyshouldcut,theywillcut,”
saysDavidWilcox,whojoinedthecentralbankin
1986 andretiredlatelastyearasheadofitscritical
research and forecasting unit. But in this atmo-
sphere, he adds, “when the Fed eases, the evidence
would have to be just a little bit stronger.”
It’s looking increasingly likely, even if there’s a
higher hurdle, that Trump will get his wish when
the FOMC meets on July 30-31. After trade and man-
ufacturing continued to show signs of weakness,
and the rock-solid jobs market suffered a hiccup,
Powell signaled in June that the case for a cut had
strengthened. He continued pointing in that direc-
tion when he testified before Congress this month,
despite a strong June jobs report.
Some in Washington have begun to wonder
whether Powell might crack under the pressure
of the almost daily invective, perhaps even throw
up his hands and quit. “Inconceivable,” says David
Rubenstein, co-founder of the Carlyle Group, where
Powell was a partner from 1997 to 2005. “He’s not
a person who just walks away from things. He’s a
very tough person, and I think he’s got the right
personality for this.”
Rubenstein is far from alone in that view. In
interviews with Bloomberg Businessweek, several
former colleagues said they were certain Powell
would continue to shrug off Trump’s barbs and
remain focused on his job.
The 66-year-old, Ivy-educated lawyer has spent
morethantwodecadesworkinginWashington,
duringwhich time he’sdeveloped a granite
exterior.Healsobuilthimselfa multimillion-dol-
larfortuneintheprivateequitybusinessbefore
joining the Treasury in 1990. After another stint in
the private sector, Powell, a registered Republican,
joined a think tank, the Bipartisan Policy Center,
before President Barack Obama appointed him to
PHOTOS: BLOOMBERG (1); GETTY IMAGES (8). DATA: FEDERAL RESERVE a seat on the Fed in 2012.
18%1260● Federalfundstarget
rateduringFedchairs’
first 17 monthson
thejobMiller
Volcker
GreenspanBernankeYellenPowell“We’ve never
had an open
rebellion
against a chair
of the Fed”