President Trump continues trying to shadowbox Jerome Powell into a corner as the Fed chair navigates through arguably the toughest decision of his tenure.
As the Fed kicked off two days of meetings Tuesday to consider whether to cut interest rates, Bloomberg News reported that as recently as February, the White House explored the possibility of demoting Powell from his chairmanship. The story drew a nondenial denial from top White House economic adviser Larry Kudlow. And Trump himself legitimized it later in the afternoon, responding to a question about whether he still wants to demote Powell by saying, “Let’s see what he does.”
It’s an open question whether Trump could pull off such an action. He would face uncertain legal terrain, probable political blowback, and the strong possibility of an ugly reaction from financial markets.
But some Fed watchers say, at a minimum, by again raising the specter of interfering with Fed leadership, the president is piling pressure on central bank policymakers as they confront competing demands over whether to give the economy a nudge with lower rates.
At least one former top Fed official suggested that’s reason enough for the central bank to abstain. “It would destroy the independence of the Fed,” former Fed vice chair Stanley Fischer said at the European Central Bank Forum in Portugal on Tuesday.
Jared Bernstein, a top Obama administration economist, said Trump’s jawboning could push the Fed to pause. “Given Trump’s badgering of the Fed to cut, in tandem with the pretty even case for pausing or cutting, there’s an independence case for the tie to go to the pauser,” he wrote Tuesday.
And Austan Goolsbee, who chaired President Obama’s Council of Economic Advisers, had a similar conclusion. “Ironically, the president publicly attacking the Fed and demanding they cut the rates is kind of the only thing preventing them from cutting the rates,” he said Tuesday in a CNBC appearance. “I think they objectively, if they looked at the data now, they would be inclined to give some relief. But in the back of their minds has to be this feeling of, ‘Well, jeez, do we really want the market to think the president is bullying us?’ ”
Expectations are low for the Fed to cut rates this week. But investors mostly agree that a July reduction is coming: Federal funds futures on Tuesday showed an 85 percent probability of a rate cut next month, according to the CME Group. Wall Street analysts are less convinced, with strategists at Goldman Sachs, UBS and JPMorgan arguing economic conditions don’t warrant such a move — or at least not yet.
As he has weathered rhetorical fusillades from Trump for nearly a year, Powell has insisted Fed policymakers will look exclusively to the economic data to steer their course. Lately, with the economy sending conflicting signals about its strength, that doesn’t simplify their task.
But the president is arguably the most confounding force of all: In addition to his treatment of Powell, Trump’s trade war has hung a massive question mark over the future of U.S. growth.
“The challenge for the Fed now is to convince the markets and everyone else that its decisions on rate-cutting reflect its best judgment about the economy and that it is not succumbing to political pressure. President Trump is making that hard,” David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution, writes in an email. “One particularly tricky issue: To some extent, the cloud over the economy is Trump’s tariffs and trade war; if the Fed cuts rates to cushion the blow to the economy, and then Trump cuts a deal with China, then the Fed will be in an awkward position. It can’t easily reverse course.”
Meantime, Trump’s ability to knock Powell off his perch is more limited than his breezy Tuesday afternoon comment suggests. As I wrote here last October, the law governing the central bank makes clear the president can remove a Fed governor only “for cause” — a standard courts have taken to mean malfeasance or bad behavior in the case of other agencies.
That is, a disagreement between the president and a Fed governor over interest rates almost certainly wouldn’t qualify.
It’s less clear whether Trump could demote Powell without removing him from the Fed altogether. Per my Oct. 5 note: “That wrinkle owes to a quirk of the Fed’s structure: Powell occupies two positions. He’s four years into a 14-year term as a Fed governor, but he’s less than a year into his four-year term as chair.” And the law is silent on removing a chair.
If the case ended up before the Supreme Court, Powell might have reason to worry, according to Peter Conti-Brown, a financial historian who studies the Fed at the University of Pennsylvania's Wharton School. “The high court’s recent decisions and present composition suggest a skepticism toward the administrative state,” he wrote in a January blog post on the matter. “Brett Kavanaugh, probably the federal judge most skeptical of limitations on presidential power over administrative agencies, will likely move the court strongly in an antiadministrative direction.”
But Conti-Brown adds the dispute would probably end long before then. “Waiting on the Supreme Court to resolve uncertainty about the control of the Federal Reserve would be devastating for the Fed’s credibility and inject substantial uncertainty into the global economy,” he wrote. “In the face of such turmoil, either Mr. Trump or the Fed would blink. In other words, despite all kinds of law around the Fed, conflicts between the central bank and the president are always and everywhere political phenomena.”
And the political climate doesn’t favor Trump’s hand. Senate Republicans, in a rare show of independence from the White House, have declined to approve the president’s last four picks for the Fed board.
Those considerations could all be moot, if Trump’s threats amount to bluster — a likelihood, according to Joseph Brusuelas, chief economist for consulting firm RSM. “The White House’s barometer on the economy is the stock market, and, increasingly, the bond market, which would have a negative reaction on even an approach to remove Powell,” he tells me. “So my sense is that’s over.”
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— Dow gains on Trump-Xi meeting news. CNN Business’s Anneken Tappe: “Stocks rallied all the way into the close on Tuesday, both in the United States and elsewhere, as positive sentiment about trade took hold of the market. [Trump] tweeted this morning to inform the public about a ‘very good telephone conversation' with Chinese Premier Xi Jinping. He said the two leaders would meet at the G20 summit in Japan next week… The Dow was up by more than 400 points at its high. It ultimately closed up 353 points, or 1.4%. The S&P 500 and the Nasdaq Composite finished 1% and 1.4% higher, respectively. European stocks also closed in the green.”
Stocks nearing record highs won't determine Fed's decision. Bloomberg's Luke Kawa: "U.S. stocks surged to within 1% of an all-time high on Tuesday. No way the Fed can cut rates now, right? Well, consider a not-so-short history of the central bank doing just that. From Alan Greenspan through Ben Bernanke, the Federal Reserve has cut a dozen times with equities within 2% of a record: June 1989, July 1989, July 1990, March 1991, August 1991, October 1991, November 1991, September 1992, July 1995, December 1995, January 1996 and October 2007... One explanation for the Fed’s repeated decision to ease monetary policy with markets in relatively good shape is that economic conditions don’t always jibe with stocks -- at least not at the start of the last six easing cycles."
— Trump attacks European Central Bank. NYT's Jeanna Smialek and Jack Ewing: "To [Trump], economics has always been a zero-sum game: If another country is winning, the United States must be losing. That view became clear on Tuesday, when Mr. Trump accused the European Central Bank of trying to prop up Europe’s economy and weaken its currency to gain a competitive edge over the United States. Mr. Trump directed his criticism at Mario Draghi, the bank’s president, who said in a speech on Tuesday that 'additional stimulus will be required' to help Europe withstand the economic challenges it faced, including mounting protectionist threats stemming from Mr. Trump’s trade war.
"Those comments caused European financial markets to rally and the euro to decline sharply against the dollar. Mr. Trump, in a series of tweets, accused Mr. Draghi of deliberately pushing down the value of the euro 'making it unfairly easier for them to compete against the USA.' 'They have been getting away with this for years, along with China and others,' he tweeted."
— Trump makes false claims about the economy at his campaign kickoff. The New York Times's Linda Qiu fact-checked some of the president's claims about his economic record during his speech launching his 2020 reelection effort — and she found he made some whoppers. Among them:
- The tax cut he signed in 2017 was the "biggest tax cut in history." Per Qiu, "Despite dozens of repetitions, this claim remains false. The $1.5 trillion tax cut, enacted in December 2017, ranks below at least half a dozen others by several metrics."
- The U.S. is "taking billions and billions of dollars in and — remember this, and you know it as well as I do — we have never taken in 10 cents from China. We would lose $500 billion a year with China.” Qiu writes that's false: "The United States had a trade deficit of $381 billion in goods and services with China in 2018. The United States has collected tariff revenue on imports since the 1700s. Data compiled by Factcheck.org shows that the United States collected more than $10 billion in customs duties on Chinese imports every year from 2010 to 2016."
“Since the election, we have created six million new jobs. Nobody thought that would be possible. They said it wouldn’t be possible.” Qiu calls this an exaggeration: "Mr. Trump is including almost three months when he was not yet president, but his figures are accurate."
— Biden tells donors he won't "demonize" the rich. As Trump launches his campaign, former Vice President Joe Biden was in New York City seeking to reassure his benefactors. Per Bloomberg's Jennifer Jacobs: "Biden told affluent donors Tuesday that he wanted their support and -- perhaps unlike some other Democratic presidential candidates -- wouldn’t be making them political targets because of their wealth. 'Remember, I got in trouble with some of the people on my team, on the Democratic side, because I said, you know, what I’ve found is rich people are just as patriotic as poor people. Not a joke. I mean, we may not want to demonize anybody who’s made money,' Biden told about 100 well-dressed donors at the Carlyle Hotel on New York’s Upper East Side, where the hors d’oeuvres included lobster, chicken satay and crudites."
The crowd included some bold-faced Wall Street names. From the NYT's Shane Goldmacher:
A lot of NY $$$ heavy hitters at Biden's event tonight, per pool:— Shane Goldmacher (@ShaneGoldmacher) June 19, 2019
Roger Altman, ex-Treasury
Steve Rattner, Willett Advisors
Robert Rubin, ex- Treasury Sec
Stephen Scherr, Goldman Sachs
Jane Hartley; ex-ambassador
Stan Shuman, Allen & Co. LLC
Biden's pitch has fallen short with one New York donor, billionaire Republican John Castimidis. "Biden spoke to Catsimatidis, who has an estimated net worth of $3.1 billion, for about 10 minutes at a fundraiser held at the New York home of short seller Jim Chanos, according to the businessman. When Biden asked for his help, 'I just smiled,' Catsimatidis said," CNBC's Brian Schwartz writes.
— Trump, Xi to meet at G20. FT's Demetri Sevastopulo: "Trump on Tuesday praised Chinese president Xi Jinping as a 'terrific' leader, but said he would only agree to a trade agreement with Beijing if both sides reached a 'fair deal'. Speaking at the launch of his 2020 re-election campaign in Florida, [Trump] suggested he was not desperate to secure a deal to end the trade war as the two leaders prepared to hold talks at the G20 summit in Japan later this month. 'I spoke to President Xi . . . this morning at length,' Mr Trump said. 'We’ll see what happens. But we’re either going to have a good deal and a fair deal or we’re not going to have a deal at all and that’s OK too.'
"Earlier on Tuesday, Mr Trump tweeted that the two leaders had agreed to meet in Osaka at the end of June. A Chinese official confirmed to the Financial Times that Mr Xi had agreed to meet the US president."
— Lighthizer: Tariffs may not stop Chinese cheating. Reuters: "U.S. tariffs on Chinese goods may not be enough to force Beijing to make the economic reforms demanded by the United States, but the trade barriers are the only recourse given dialogue has failed, the top U.S. trade official said on Tuesday... 'I don’t know if it will get them to stop cheating, tariffs alone,” U.S. Trade Representative Robert Lighthizer told lawmakers at a hearing of the Senate Finance Committee. 'I think you don’t have any other option. I know one thing that won’t work and that is talking to them.'”
— American has never gone this long without raising the minimum wage. The Post's Jeff Stein: "America has now gone longer without an increase in the federal minimum wage than at any point in the law’s eight-decade history. In July 2009, almost 10 years ago, the federal minimum wage rose from $6.55 an hour to $7.25 an hour. Since then, Congress has not approved any additional hikes, with Republican lawmakers generally rejecting Democrats’ attempts to raise the minimum wage.
"Kevin Hassett, chairman of the White House Council of Economic Advisers, said he and President Trump have not discussed the administration’s position on raising the federal minimum wage. Trump has backed a number of positions on the minimum wage, saying at one point during the 2016 presidential campaign that he supported significantly increasing it and at others that he would not lift it."
— Charities say tax law made Americans less generous. Bloomberg's Laura Davison: "Americans gave less money to charities last year partly because the Republican tax law changes made many people ineligible for tax breaks that can inspire donations. Giving by individuals fell an estimated 3.4%, after adjusting for inflation, last year, according to a report released Tuesday by Giving USA. The numbers reflect the first year of the 2017 tax overhaul that expanded the standard deduction, a simpler way of filing taxes, but also excluded millions of taxpayers from claiming a tax break for donating to charity."
— Waters calls for Facebook to pause its cryptocurrency rollout. The Hill’s Sylvan Lane: House Financial Services Committee Chairwoman Maxine Waters (D-Calif.) on Tuesday called on Facebook to halt its new cryptocurrency project until regulators and Congress weigh in on the endeavor. In a statement, Waters said that the social media giant should back away from the financial services industry because of the company’s repeated privacy breaches, alleged violation of consumer protection laws, and a string of other controversies involving user data. ‘With the announcement that it plans to create a cryptocurrency, Facebook is continuing its unchecked expansion and extending its reach into the lives of its users,’ Waters said in a Tuesday statement.
– Waters, McHenry reach deal on Ex-Im reauthorization. WSJ's Andrew Ackerman: "A House agreement reached late Tuesday would give new life and political stability to an embattled agency that smooths export deals between U.S. manufacturers and overseas buyers. [Waters] and Rep. Patrick McHenry (R., N.C.), the ranking Republican member of the committee, agreed Tuesday night to a long-term deal that would keep the U.S. Export-Import Bank open for business for seven years and impose a series of new financing restrictions aimed in part at placating GOP critics of the bank, according to people familiar with the matter and a document reviewed by The Wall Street Journal. The deal would ensure that the bank remains operational after its existing charter lapses at the end of September."
Per CNBC's Carl Quintanilla, Goldman sees a narrow case for Trump's reelection based on his approval rating and the economy's projected performance:
Goldman sees a path for Trump to win the 2020 popular vote, based on GDP growth forecasts — despite his negative net approval rating: pic.twitter.com/xWfZAkDwlE— Carl Quintanilla (@carlquintanilla) June 19, 2019
From The Post's Tom Toles: