Does Trump Have the Legal Authority to Demote the Federal Reserve Chairman?

This is not clear.

In the statute, the phrase that forbids a president to fire the seven Fed governors without cause is attached to a sentence that sets their terms at 14 years. This sentence traces back to the original 1913 law that created the Fed, which was revised in a 1935 law. The next sentence, which Congress added in a 1977 law, says the president shall designate one of those governors to be the chair for a four-year term, subject to additional Senate approval.

As if parsing text that different generations of lawmakers edited decades apart was not tricky enough, the question focuses on what to make of the fact that the 1977 sentence about designating a chair does not contain the “for cause” removal phrase. Because no president has tried to fire a Fed chair who was unwilling to resign, there is no precedent to serve a guidepost for whether the protection from arbitrary firing extends to the role of board chair.

If Mr. Trump did demote Mr. Powell and the latter filed a lawsuit challenging whether it was lawful to strip him of his chairmanship, the outcome could turn on the philosophy that a judge brings to the question of how to interpret statutes, said Peter Conti-Brown, a legal studies and business ethics professor at the University of Pennsylvania’s Wharton School and the author of the book “The Power and Independence of the Federal Reserve.” A judge who analyzes the dispute based on the text alone would most likely rule that Mr. Trump could demote Mr. Powell, while a judge who thinks the statute should be analyzed in light of Congress’s intent of structuring the Fed to be able to resist political pressure could rule the other way.

Not on paper. The Fed chair wields no more voting power than the other six governors as the head of the central bank’s board. But the chair does have outsize influence on the financial markets, which parse and react to every utterance that person makes.

Even if Mr. Trump were to demote Mr. Powell, the president might not succeed in removing him from his parallel position as the chairman of the central bank component that sets interest rates and controls the money supply. That group, known as the Federal Open Market Committee, has 12 voting members: the seven Fed governors and five of the 12 presidents of the regional Fed banks. By tradition, the committee has selected whoever is serving as Fed chair to be its chair, too — but in theory, it could choose to keep Mr. Powell as its chairman regardless of Mr. Trump’s demotion, in a show of resistance to political interference.

Nevertheless, Mr. Trump could see a high-profile and unprecedented demotion of Mr. Powell as a politically advantageous symbolic step, since it would help him try to persuade any voters who are experiencing economic problems not to blame him.

Mr. Conti-Brown said Congress had two options for trying to block Mr. Trump from removing Mr. Powell as the chairman.

Source

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