This is a lightly edited transcript of the accompanying video from professor Peter St. Onge.
The Wall Street Journal is speculating that President-elect Donald Trump may fire Federal Reserve Chairman Jerome Powell. Powell says he won’t go.
Can the president fire a Fed chief? And if not, who is actually running the Fed?
Trump appointed Powell in 2017, and has pretty much been at war with him ever since. Powell was appointed on the recommendation of his friend Treasury Secretary Steve Mnuchin, a former hedge funder.
Powell himself is not actually an economist—he worked in private equity, which normally buys up companies and sells them for parts. But Powell worked for a conspiracy theorist’s fever dream, the Carlyle Group, featured in “Fahrenheit 9/11” as the crony poster child of the military industrial complex.
It’s a big club. And Trump was new to the game. At any rate, just nine months in, Trump already wanted Powell gone, because Powell was raising interest rates when inflation was two-and-a-half points. Higher rates slow growth, and Trump had promised growth.
Once COVID-19 hit, of course, rates went to zero, so it was moot. Fast-forward to today, with Trump musing during the campaign that rates are too high, which is strangling the economy and squeezing families.
Of course, Powell is doing this because the alternative is to control inflation by cutting government spending. So, can Trump fire Powell and get the Fed chairman of his dreams?
Presidents can’t outright fire Fed chairs unless it’s for cause—meaning, they’re corrupt or go to Diddy parties. But they can demote them to regular Fed governors, who have less power. But that requires an open seat, which doesn’t happen until early 2026—a few months before Powell’s term as chair ends anyway.
Of course, Congress could always create an open seat by packing the Fed. In which case Trump could demote Powell today and appoint a new chair.
So, he sort of can. But … should he?
There’s the surface question: Should rates go lower? That depends how far away we are from recession and whether “Trumponomics” will head off that recession.
But the more important question is, why do we have a system where Fed chairs can’t be fired?
After all, we live in a republic where politicians are the voice of the voters. If a Fed chair is independent of presidents, it means he is independent of voters.
In which case, who exactly does the Fed answer to? JP Morgan? Citigroup?
Indeed, former Rep. Ron Paul, R-Texas, has pointed out the Fed has less oversight than the CIA. Fed chairs can and do refuse to answer oversight questions from Congress, which would obviously get a CIA director fired—something presidents very much can do.
This is, incidentally, true of all modern central banks. They are intentionally set up to be independent of voters—allegedly because voters like inflation, but possibly because the purpose of a central bank is to print money and hand it to bankers, governments, big corporations, and rich people.
None of which would be very popular with voters. In fact, voters might shut it down—the money printing and the central bank.
So, what’s next?
Whether or not Powell sticks around, the fight raises an important question why, precisely, our economy is manipulated by a private corporation—the Fed—that’s not only unconstitutional, but explicitly does not answer to voters.
Government shouldn’t be manipulating the economy in the first place. But doing it independent of voters amounts to an economic occupation.
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