All of that might mollify Trump, though questions remain about whether he would try to remove Powell should the Fed not do as the president likes.
In Wall Street’s view, Trump may have the authority to remove the Fed chair for “cause” but likely would have a hard time proving his case just because he doesn’t like where interest rates are heading.
“Removing Powell for ’cause’ likely would involve a series of lawsuits without timely resolutions,” Citigroup’s Peterson said. “Indeed, President Trump would have to prove that Powell should be removed for ’cause,’ in which legal precedent alludes to dereliction of duty, moral turpitude, physical or mental incapacity, or similar failings that demonstrate an unfitness for the office, not disagreement over policy.”
As a practical matter, removing Powell wouldn’t guarantee Trump a Fed reluctant to hike rates.
Of the remaining group, only St. Louis President James Bullard has professed a strong commitment to pausing on rate hikes.
“Even if Trump succeeded in having a dovish Powell replacement confirmed by the Senate, the new Chair of the Fed Board would hold only one vote on the FOMC, meaning he or she could easily be out-voted by the other Fed Governors and voting regional Fed Presidents,” Paul Ashworth, chief U.S. economist at Capital Economics, said in a note. “Trump could escalate the fight by dismissing the remaining four Fed Board Governors. But replacing them would require finding another four candidates willing to act as political stooges, and then getting those nominees confirmed by the Senate.”
Ashworth said the bigger risk is that Trump might take out his anger at Powell on Treasury Secretary Steven Mnuchin, who backed Powell’s appointment.
Doing so would be disruptive as Mnuchin has been a leader in the U.S.-China trade talks. The departure of Mnuchin, Ashworth argued, would be more significant for markets than even replacing Powell.