From an engineering point of view, to achieve a stable system, feedback needs to happen with the right phase AND respond to changes much more slowly than the behavior itself changes. Otherwise the system keeps chasing an unstable target and usually goes into very unstable behavior.
Allowing Fed policies to change according to political whims is a near-guarantee for instability, when what's needed is a slowly changing response with the right timing.
What does it mean to “fire” Powell? He holds two positions: (1) Most prominently, he is Chair of the Federal Reserve until his current (second) four-year term ends on March 22, 2026. (2) In addition to being Chair, he is also a Member of the Board of Governors whose term does not expire until January 31, 2028.
If Trump were to attempt to fire Powell before his term as Chair expires next March, he would either have to choose a new chair from among the existing Board membership or fire Powell as a Member as well, which legally he can only do for cause. Of course, legal niceties mean little to Trump. That said, any replacement, no matter when nominated, would face Senate confirmation for two separate appointments—as a new (or returning) Board Member and as Board Chair. (If Trump were to wait out Powell’s term as Chair, he could choose from outside the existing membership even if Powell refused to resign his position as Member as Governor Adriana Kugler’s term expires next January.)
Even this is not the end of the story. Trump assumes that Powell unilaterally decides whether and when to change the Fed’s policy regarding interest rates. However, that decision is actually made by the Federal Open Market Committee (FOMC), a group of twelve officials comprised of all seven Board Members, the President of the New York Fed, and 4 of the other 11 regional Fed Bank presidents who serve on a rotating basis. By convention but not by law, the Chair of the Board of Governors serves as the Chair of the FOMC, but this person formally gets only one vote out of 12. Thus, the Chair’s outsized influence on the decision results from his/her ability to persuade at least six other FOMC members.
In short, while I emphatically agree that any attempt to fire Powell would have disastrous consequences in financial markets—outcomes that would probably overturn Trump’s desire for lower market interest rates even if the Fed proved more compliant—it is also the case that his hand-picked replacement might find life just a tad more difficult than Trump imagines.
Really enjoying these doses of sanity and perspective. The memo from Biden days Econ advisors was worth the read for additional understanding, historical context. I love looking at those historical graphs, trying to figure out what was going on at various times.
And, lol, a second yiddish word of the week! Mishegoss is a KEEPER, and looking forward to finding a couple times to use it today.
Being the global reserve currency brings immense advantages. But reserve status is not a birthright. It comes with stringent requirements. In a world where the safety-liquidity-return hierarchy governs global capital flows, breaching the “safety” pillar would be the most dangerous move of all.
From an engineering point of view, to achieve a stable system, feedback needs to happen with the right phase AND respond to changes much more slowly than the behavior itself changes. Otherwise the system keeps chasing an unstable target and usually goes into very unstable behavior.
Allowing Fed policies to change according to political whims is a near-guarantee for instability, when what's needed is a slowly changing response with the right timing.
Firing Powell is a one way trip to a nine handle on the 10 year.
What does it mean to “fire” Powell? He holds two positions: (1) Most prominently, he is Chair of the Federal Reserve until his current (second) four-year term ends on March 22, 2026. (2) In addition to being Chair, he is also a Member of the Board of Governors whose term does not expire until January 31, 2028.
If Trump were to attempt to fire Powell before his term as Chair expires next March, he would either have to choose a new chair from among the existing Board membership or fire Powell as a Member as well, which legally he can only do for cause. Of course, legal niceties mean little to Trump. That said, any replacement, no matter when nominated, would face Senate confirmation for two separate appointments—as a new (or returning) Board Member and as Board Chair. (If Trump were to wait out Powell’s term as Chair, he could choose from outside the existing membership even if Powell refused to resign his position as Member as Governor Adriana Kugler’s term expires next January.)
Even this is not the end of the story. Trump assumes that Powell unilaterally decides whether and when to change the Fed’s policy regarding interest rates. However, that decision is actually made by the Federal Open Market Committee (FOMC), a group of twelve officials comprised of all seven Board Members, the President of the New York Fed, and 4 of the other 11 regional Fed Bank presidents who serve on a rotating basis. By convention but not by law, the Chair of the Board of Governors serves as the Chair of the FOMC, but this person formally gets only one vote out of 12. Thus, the Chair’s outsized influence on the decision results from his/her ability to persuade at least six other FOMC members.
In short, while I emphatically agree that any attempt to fire Powell would have disastrous consequences in financial markets—outcomes that would probably overturn Trump’s desire for lower market interest rates even if the Fed proved more compliant—it is also the case that his hand-picked replacement might find life just a tad more difficult than Trump imagines.
Really enjoying these doses of sanity and perspective. The memo from Biden days Econ advisors was worth the read for additional understanding, historical context. I love looking at those historical graphs, trying to figure out what was going on at various times.
And, lol, a second yiddish word of the week! Mishegoss is a KEEPER, and looking forward to finding a couple times to use it today.
Being the global reserve currency brings immense advantages. But reserve status is not a birthright. It comes with stringent requirements. In a world where the safety-liquidity-return hierarchy governs global capital flows, breaching the “safety” pillar would be the most dangerous move of all.
https://open.substack.com/pub/marketszoon/p/dollar-privilege?r=58uzcq&utm_campaign=post&utm_medium=web&showWelcomeOnShare=false
Word on the street is that Kevin Warsh is waiting in the wings.
It was good to see and hear Powell's fighting spirit this week. I hope he keeps it up until the very last second.
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Direct link to the Warsh news item in my daily news post:
Things Musk (and Trump) Did... 04-18-25 | Blog#42
-Trump wants Powell out of the Fed. Waiting in the wings is Kevin Warsh
https://rimaregasblog42.substack.com/i/161600973/trump-wants-powell-out-of-the-fed-waiting-in-the-wings-is-kevin-warsh