I predicted in April that Trump would fire Powell. At the time I wrote that Powell’s firing was probably imminent; this turned out to be wrong. But I stated further that if not “in the next day or two,” then Trump would fire Powell “certainly before Powell’s term ends in May 2026.” I still think that last part is correct.
Would the Supreme Court let it happen? I think it would. In May, it issued a quickie emergency docket ruling that stated, outrageously, that even though it hadn’t yet got around to hearing arguments about whether to overturn Humphrey’s Executor v. United States (that’s the 90-year-old ruling that bars presidents from firing at will top officials at independent agencies), the high court’s majority fully expects to overturn it, so lower courts should quit treating Humphrey’s Executor as precedent. In a minority dissent, Justices Elena Kagan, Ketanji Brown Jackson, and Sonia Sotomayor were appropriately appalled.
I have my doubts, not only because drawing a legal distinction between the Fed and other independent agencies will be difficult (since none really exists) but also because, if the court’s sole interest is to calm markets, then the quickest solution, if Trump calls its bluff, is abject surrender. Should Trump precipitate a financial crisis by firing Powell in defiance of the Supreme Court, the Supreme Court can’t calm the waters by giving Trump a fight. It can only do that by telling Trump: OK, fine, fire the Fed chair, it’s not like we ever ruled that you couldn’t in an honest-to-God nonemergency decision. How thoughtful of you, Mr. President, to select a replacement in advance.
“Changes to trade, immigration, fiscal, and regulatory policies continue to evolve,” Powell said at last week’s press conference, “and their effects on the economy remain uncertain.”
More Powell: “We may find ourselves in the challenging scenario in which our dual mandate goals are in tension.”
Powell presents all this as a simple matter of reading the data, but it isn’t lost on anybody (least of all Trump) that that’s a dodge. Trump thinks it’s a dodge because he believes that Powell wants him to fail, because Trump is incapable of not taking anything personally. In fact, it’s a dodge because the data is the market’s attempts to parse exactly how crazy and self-destructive Trump is going to be. For the moment the stock market has embraced TACO, which stands for Trump Always Chickens Out, but that’s wishful thinking, because although Trump frequently chickens out, there’s no guarantee he will always do so, or do so in time.
As Paul Krugman points out in his Substack, Trump isn’t wrong to point out that the European Central Bank is behaving quite differently, cutting rates while the Fed refuses to. If Trump weren’t president, the Fed would likely be cutting rates too. But the fact that it isn’t doesn’t prove that Powell is a fool, or that he somehow has it in for the man who appointed him Fed chair. It shows that the European Central Bank doesn’t have to contend with an unstable president of the United States. (Or rather, it doesn’t have to contend with it as much as the Fed does.)
“Trump’s childish insults aren’t going to make any difference,” Krugman writes, “except possibly to make Powell even more cautious to avoid giving the impression that he can be bullied.”
Thus, a vicious circle is set in motion. The more Trump behaves like an asshole, the more Powell doubts Trump’s ability to manage the economy; the more Powell doubts Trump’s ability to manage the economy, the more Trump will behave like an asshole. The only end point I see in this game is Trump firing Powell. I would very much like to be wrong.
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