What Happens If Trump Fires Powell?

It's crazy to have to ask the question, yet here we are.

One knows not where to start these days. I also need to get somewhere so these comments will be too brief.

On a basic level, it makes sense that Trump would want to fire Powell, a highly competent, highly independent Fed chair, whose actions have large implications for the national and even global economy. For Trump, there can only be one king.

On a rational level, it would be crazy to do so. You’ve really got to pull back from the narrow question “why hasn’t the Fed lowered rates?” as well as the BS pretense question of whether Powell misled Congress about the renovation of the Fed’s headquarters (he did not), and just recognize that a central bank under the direction of any president, much less an authoritarian who thinks he knows monetary policy better than anyone at the Fed, is recipe for disaster.

Especially now that the tariffs are showing up in consumers prices (less so, this AM, in producer prices), a very large interest rate cut of the type Trump’s demanding ( 3 percentage points!) would be highly inflationary, leading investors to demand an inflation premium, i.e., a higher interest rate in exchange for their loans, i.e., the opposite of what Trump is looking for.

To be fair, that’s a moot concern because there’s no way the rest of the Fed board would vote in support of such madness, regardless of what Trump’s appointed chair says, but once he tastes blood, who knows where he’ll stop with the firing.

You never know what markets will do but I’d guess equities and the dollar would sell off and interest rates would spike (that’s what happened today when he floated this madness), though who knows how much of this is “priced in,” or if markets would eventually slough this off the way they have the trade war.

Also, what actually happens if Powell gets fired? I mean, like that day. Does he get escorted out of the building with his belongings in a cardboard box? Can he invoke his privilege to move from chair to be a member of the board for the next few years (hard to imagine, giving Trump’s wrath, but that would be a preferable outcome to the cardboard box scenario)? Does he sue the president and stay in office while the case proceeds? We don’t have any historical precedent by which to evaluate these options.

With apologies for going to the technocratic place, one thing I’d worry a lot about is the de-anchoring of inflationary expectations. This powerful force, highly correlated with central bank independence, does a ton of heavy lifting behind the scenes in terms of keeping inflation and interest rates in a better, more pro-growth place than they’d otherwise be. And I’m pretty confident that firing Powell and replacing him with a Trump lackey would be very bad for the inflation anchor.

As we speak, Trump has demurred, saying he doesn’t plan to fire Powell, despite having apparently drafted a letter to do so. Perhaps in NYC real estate, it’s smart to keep your opponents off balance, as Trump is doing here and as defines his trade-war tactics. But it’s terrible presidenting.

It’s all just an endless morass of terrible presidenting.