Trump is right to want to Powell out at the Federal Reserve — but not just because of interest rates
In July 1988, Mike Dukakis was leading the presidential race versus George H.W. Bush — but not for long.
A little later that summer, the Democratic nominee agreed to do a photo-op in a battle tank with an army helmet perched awkwardly on his head.
GOP spin masters capitalized with the now infamous “tank ad” that lost Dukakis the election — and rightfully so.
The public agreed that a pointy-headed dork who tried to pass himself off as a tough guy shouldn’t be anywhere near the US presidency.
That’s how I felt Thursday, watching the odd spectacle of Federal Reserve Chair Jerome Powell donning an ill-fitting helmet as he and President Trump toured the Fed’s new unfinished and overindulgent $2.5 billion “Taj Mahal” headquarters.
Yes, Trump wants Powell out mainly because the Fed boss refuses to lower interest rates and juice the economy.
But let’s pause a moment to contemplate the construction-site fiasco. Trump chose to tour the facility because he wanted to make Powell look like a fool.
And it worked. Like Powell, Trump, too, was wearing a helmet, but the president looked pretty comfortable as his hulking frame towered over the central banker’s. Recall that Trump is a real estate developer.
Powell, meanwhile, looked like an economist who had just landed on Mars. He stood by nervously as Trump took some shots at the project’s well-publicized cost overruns.
Powell did manage to point out that the president had mistakenly added a few hundred million dollars to the actual total, but the actual total was outrageous nonetheless.
It’s easy to shrug off the presser as just another day in our Trumpian soap opera. The president is a master at working the room. Powell is not — he can barely do his job setting interest rates.
Yet as we debate Powell’s future, the scene serves as a suitable Dukakis-like metaphor, and an indicator that maybe Trump is right, and Powell needs to go sooner rather than later.
Independence is key
It takes a lot for me to say that. I don’t necessarily agree that we need to cut interest rates before we see the impact of Trump’s possibly inflation-inducing tariffs.
Plus, Fed independence from political forces is of fundamental importance. It’s the reason people buy our debt and finance our standard of living.
The Federal Reserve Act of 1913 gives the central bank this large degree of autonomy because if it appears the chairman is a patsy of the president — lowering rates on his orders simply to stimulate growth — investors will see our debt as worthless paper prone to the ravages of inflation.
If we can’t sell our debt, we will get the mother of all financial crises, one that makes 2008 look like a cakewalk.
But defending Fed independence on Powell’s record is a loser’s game. Trump in 2017 during his first term appointed Powell and the two butted heads immediately.
Trump wanted lower rates while the economy — thanks to his tax policies — was roaring.
Powell initially didn’t give in and for good reason: The economy was too hot. But he ultimately caved to Trump and started slashing interest rates.
It’s reason No. 1 he should be fired: He’s far from independent.
The rate cuts left the Fed with fewer policy measures when it really needed to add liquidity during the COVID lockdowns.
Kept printing money
Here’s reason No. 2: During COVID, Powell used whatever dry powder he had in the Fed’s arsenal to print money like it grew on trees.
Even after businesses opened and the pandemic ended, he kept printing. Interest rates remained at zero or near zero well into the Biden presidency. (He was re-appointed by Sleepy Joe to a four-year term that ends next year.)
All this occurred as Biden spent trillions of dollars, exploding our debt and setting the stage for inflation. Powell then brushed off concerns that all this continued liquidity would do more harm than good.
He seemed to be working with Biden’s inept Treasury Secretary Janet Yellen to spin the situation, calling the inflation “transitory.”
It wasn’t. Inflation hit 9.1% before Powell began to raise rates. It was one of the worst policy mistakes ever made by a Fed chair; fighting inflation is part of his dual mandate and the most important part because it’s a tax on working-class Americans who can’t speculate around it in the markets.
I know — I am arguing that Trump is right to get rid of Powell for the wrong reasons. Tariffs could cause higher prices and cutting rates might spike them further. And if Trump did ax Powell before his term ends, it could set up a constitutional battle royal.
But it’s hard to defend Powell’s long track record of cluelessness on monetary policy — or his cluelessness at the construction site. The sooner he goes, the better.