Do Not Sleepwalk Through Trump’s Attack on the Fed’s Independence

Opinion|Do Not Sleepwalk Through Trump’s Attack on the Fed’s Independence

At a congressional hearing in July 2019, Representative Maxine Waters asked the Federal Reserve chairman, Jerome Powell, what he would do if the president called and said, “I’m firing you, pack up, it’s time to go.” Mr. Powell said diplomatically, “My answer would be ‘no.’” In private, he was more blunt. “I will never, ever, ever leave this job voluntarily until my term ends under any circumstances,” he said. “None whatsoever. You will not see me getting in the lifeboat.”

We may soon find out the depth of that conviction. “Powell’s termination cannot come fast enough!” President Trump wrote Thursday morning on social media, a day after Mr. Powell said that the Fed may need to postpone cutting interest rates, thanks to Mr. Trump’s tariff policy.

This was not another impulsive social media post. Since returning to the White House, Mr. Trump has been laying the groundwork to fire Mr. Powell, discussing the idea repeatedly with close advisers. This latest escalation brings us even closer to a full-blown crisis over Fed independence.

Mr. Trump’s dislike for Mr. Powell is more than a personal spat. It’s a direct challenge to the economic foundation that has helped make America prosperous for generations. The Federal Reserve, established in 1913 and reconstituted in 1935, manages interest rates to ensure credit doesn’t become too expensive, stifling investment and employment, or too cheap, spurring inflation. The Fed also regulates and supervises financial institutions to ensure they are financially sound.

The combination of its monetary and regulatory policy are part of a policymaking tradition that I call “marketcraft”: guiding markets toward a particular political and economic goal — in the Fed’s case, stable prices and full employment. Like many institutions, the Fed has an imperfect track record in meeting its goals, but a fundamental ingredient to its success has been insulation from political pressure — precisely what the president is targeting.

Mr. Trump began issuing threats to the independence of the Fed and other agencies in his first term, but he’s doing far more to make good on them in his second. In his first week in office, he fired a Democratic member of the National Labor Relations Board. Last month, he removed two Democratic commissioners from the Federal Trade Commission, despite statutory protections that specify these officials can be removed only “for cause” — inefficiency, neglect or malfeasance.