The Supreme Court made Trump’s attack on Jerome Powell possible |
On Sunday evening, Federal Reserve Chair Jerome Powell revealed that the Trump administration has opened a criminal investigation into him, nominally because of a dispute over a renovation of the Fed’s headquarters. The real reason for the investigation is almost certainly that President Donald Trump wants to push Powell out of office and make room for someone more aligned with Trump’s agenda.
Trump initially appointed Powell to lead the Fed in 2018, but the president later soured on Powell, because Trump wants the Fed to lower interest rates more quickly than it has.
By law, the Federal Reserve is insulated from presidential control, and members of the Fed’s Board of Governors may only be removed by the president “for cause.” This is because the Fed has the power to temporarily stimulate the economy, potentially boosting a president’s approval rating during an election year, but at the cost of much greater economic turmoil down the road.
In advance of the 1972 election, for example, President Richard Nixon successfully pressured Fed Chair Arthur Burns to lower interest rates in order to juice up the economy. It worked, at least in the short term, and Nixon won that election in an historic landslide. But Burns’s decision to play along with Nixon is often blamed for the years of “stagflation,” slow economic growth and high inflation, which followed.
As University of Michigan economist Justin Wolfers told the BBC Sunday night, pressuring a central bank to lower interest rates without justification is “a thing that tin pot dictators do right before starting a hyperinflation and destroying their own economies.”........