- President Donald Trump said this week Fed chair Jerome Powell’s “termination cannot come fast enough.” That’s led to a debate about whether the president has the power to remove Federal Reserve leadership. Chicago Fed President Austan Goolsbee says this move could “undermine the credibility of the Fed.”
This week, President Donald Trump set up a showdown with Federal Reserve chair Jerome Powell after the head of the central bank made a speech warning of the impacts of the president’s on-again, off-again tariffs.
“The level of tariff increases announced so far is significantly larger than anticipated, and the same is likely to be true of the economic effects, which will include higher inflation and slower growth,” Powell said on Wednesday during a speech at the Economic Club of Chicago.
Trump quickly fired back the following day, criticizing Powell for not lowering interest rates fast enough.
“‘Too Late’ Jerome Powell of the Fed, who is always TOO LATE AND WRONG, yesterday issued a report which was another, and typical, complete ‘mess!’” Trump wrote in a social media post. “Powell’s termination cannot come fast enough!”
Although Trump acts as if he has the power to remove the Fed chair, this comes as a direct challenge to a nearly 100-year-old precedent from a Supreme Court case in which the court held that President Franklin Roosevelt could not remove the heads of an independent agency without a good reason such as neglect or wrongdoing. Meanwhile, many critics also fear a move by Trump to remove Powell would decimate confidence in the U.S. economy.
Fed presidents don’t comment on politics in order to uphold the central bank’s stance as an apolitical institution, but one fears what could happen if Trump were to figure out a way to remove Powell.
“I strongly hope that we do not move ourselves into an environment where monetary independence is questioned,” Chicago Fed President Austan Goolsbee told CBS’s “Face the Nation with Margaret Brennan” on Sunday. “Because that would undermine the credibility of the Fed.”
Goolsbee also noted there is “virtual unanimity” among economists that the Fed should have monetary independence from political interference.
“They came to that not as a theory, but just by looking around the world at places where they don’t have monetary independence,” Goolsbee said. “The [stance] that the Fed or any central bank be able to do the job that it needs to do is really important.”
Powell has also appeared confident he can’t be fired by Trump, and when asked if he would leave if the president asked him to, he said no.
“Generally speaking, Fed independence is very widely understood and supported in Washington, in Congress, where it really matters,” Powell said at the Economic Club of Chicago.
Trump was also the one to appoint Powell in 2017, but has criticized pretty much everything he’s done including lowering interest rates, raising interest rates, and keeping them steady.
Still, there’s debate about whether Fed independence is truly protected. Some experts argue monetary independence is more of a norm than a law.
“Laws also depend on people and who they are, how they interpret things, and what they’re willing to do. I think there could certainly be some reduction in the extent of the independence of the Fed going forward,” Itay Goldstein, finance department chair at the University of Pennsylvania’s Wharton School, told Fortune’s Greg McKenna. “Hopefully not.”
This story was originally featured on Fortune.com