My longtime friend and Cumberland Advisors Board colleague wrote this commentary about the president’s actions and words regarding Fed Chair Powell. Readers already know I am a supporter of Powell and believe the president’s behavior and verbal abuse is harmful to the Fed, the US banking system, and the nation. My quote in Andrea Riquirer’s recent story in USA Today “‘Ripping the fabric of the universe’: Trump targets Powell, and investors react” has been widely circulated.
Bob Eisenbeis had a long and distinguished career with the Federal Reserve before he retired as Director of Research at the Federal Reserve Bank of Atlanta. He was Chief Monetary Economist at Cumberland before his recent retirement. Below are his words on this subject. I’m honored to have Bob as a guest commentator in the Kotok Report.
Will He or Won’t He Try to Fire Chairman Powell? by Bob Eisenbeis
For most of his second term, President Trump has been attacking Chairman Powell for not delivering on the lower interest rates that the president wants. On multiple occasions he has referred to Chairman Powell in derogatory terms and called for his resignation and/or firing. The president is motivated by what he sees as higher-than-he-desires interest rates and their impact upon government borrowing costs at a time when his Big Beautiful Bill promises to increase the deficit by some $3 trillion. He fails to see that the Federal Reserve’s control of the federal funds rate is a tool of monetary policy designed to help achieve the Fed’s statutory mandate of stable inflation and full employment. It is not a tool of fiscal policy to be manipulated by the administration to control government borrowing costs, nor is the Fed charged with supporting fiscal policy.
Having failed with his personal attacks directed at interest rate policy, the president has now shifted his strategy to suggest possible removal of Chairman Powell because of cost overruns and alleged malfeasance associated with the Federal Reserve’s renovations of its buildings. As part of that strategy, White House Budget Director Russell Vought sent a letter to Chairman Powell raising questions about the Fed’s building renovation costs and suggesting that Powell may have misled Congress about the project’s costs when he testified. Interestingly, the Board of Governors implicitly responded to Vought’s accusations by posting a detailed question-and-answer page on its website, addressing issues surrounding the renovation projects. Those Q&As were then reportedly also followed up with a letter from Powell on July 17th, responding to the Vought letter. Then, this Monday, Treasury Secretary Scott Bessent suggested it would be appropriate, in view of alleged policy mistakes, to have a broad review of the Federal Reserve beyond just its building renovations. Implicitly, Bessent is envisioning opening the entire Federal Reserve Act and the Fed’s performance to review.
Bessent echoes the president’s assertion that Powell has made a policy mistake in the current environment and argues for lower interest rates. But a quick assessment of the Board’s performance since its dual congressional mandate was instituted shows little evidence that the Fed has made significant and persistent policy mistakes. Indeed, the two charts below on inflation, growth, and unemployment show quite a persistent path for inflation in the 2% range, unemployment around 4% to 5% except for recession periods, and growth in the 3% to 4% range, regardless of which party held the presidency.
The most disruptive period occurred during President Trump’s presidency when the COVID-19 pandemic hit and caused an unpresented fluctuation in employment and growth. Even then, the Fed responded with an aggressive interest rate policy and emergency lending programs that avoided an outright recession.
The Fed’s posting in response to Vought’s allegations is important for several reasons. It goes into specifics, including a statement of goals of the project, when it was approved, what state and federal agencies the Board consulted on the projects, lists denying that certain alleged features were part of the project, a statement that the Board’s independent inspector general has had access to the project details and receives monthly reports on the projects, and numerous other responses to possible questions about the need for the renovations, an explanation about cost overruns, and a project timeline, just to name a few. Despite these rebuttals, Florida U.S. Rep. Anna Luna has now made a referral of Fed Chair Powell to the DOJ, accusing him of false testimony about the Eccles Building renovation.
This situation really is a fast-moving target.
But most critical from the perspective of whether alleged mismanagement of the project might be a cause for removal of Chairman Powell, the Q&A also clearly states that “The project is overseen by the members of the Board of Governors, all of whom are Senate-confirmed. It was first approved by the Board in 2017. It has been subject to annual budget approval by the Board since then.” Because the renovation is a Board of Governors project, an attempt to use the project as a rationale for removal of Chairman Powell appears to be on extremely shaky legal and procedural grounds. Indeed, the Q&A puts the Board on the public record confirming that it is responsible for the project and that it approved and oversees the project on a regular basis and has done so since the project’s inception. The Board, and not just the chairman, is responsible for all aspects of the renovation.
Those who argue for removal of the Board’s chairman fail to understand the Federal Reserve’s structure, how it operates, and the role of its chairman. Unlike some other agencies — the Treasury, for example — the Federal Reserve is structured such that the Board chairman cannot and does not make unilateral decisions when it comes to policies or critical operational decisions. Those decisions are made collegially by the seven members of the Board, including the chairman, who has only one vote.
But the key monetary policy decisions when it comes to the system’s statutory responsibilities to achieve stable prices and full employment are actually divided between the Federal Open Market Committee and the Board of Governors. A separate legal body within the Federal Reserve System, the FOMC sets the federal funds policy rate and consists of the seven governors of the Board, the President of the Federal Reserve Bank of New York, and five of the remaining eleven Federal Reserve Bank presidents, who rotate yearly on the Committee. Technically, the chairman of the FOMC is elected at the Committee’s first meeting each year. By custom, but not by law, the FOMC chairman has always been the chairman of the Board of Governors.
The Board of Governors sets other policy rates in coordination with the FOMC, including the discount rate, the rate on emergency lending programs, and the interest rate on bank reserves. These rates are coordinated by the Board with the FOMC and, in the case of the discount rate, the FOMC will typically temporarily adjourn its policy meeting while the Board of Governors vacates the room to independently set the discount rate; and then the Board returns to the FOMC meeting, which is resumed. Fed monetary policy is presently subject to congressional oversight, and the Board chairman reports to Congress twice a year on its accomplishments.
While the Board chair is appointed for four-year terms by the president, the chair must be a member of the Board of Governors. So, Chairman Powell, whose term as chairman of the Board is up May 15, 2026, but whose term as a governor is not up until January 31, 2028, could be elected chairman of the FOMC in January of 2026 and serve in that position through 2026, even if he were not reappointed by President Trump as Board chairman in May 2026. There is only one governor, Governor Kugler, whose term expires on January 31, 2026, after the first Board meeting in mid-January of 2026 and after the chair of the FOMC is elected for the year. So, in the unlikely case that the president chooses not to reappoint Powell as chairman, the options for a replacement are limited; furthermore, Powell might be chairman of the FOMC through 2026 while someone else might be chairman of the Board.
This outcome would not only create turmoil and uncertainty within the Federal Reserve System but would also totally confuse and disrupt financial markets. To open the entire Federal Reserve Act to review, as Secretary Bessent proposes, would add another critical set of concerns and even more uncertainty and market disruption. Indeed, two former Federal Reserve Chairs — Ben Bernanke and Janet Yellen — have just publicly commented that the preservation of Federal Reserve independence is critical for the economy and the country. They said that regardless of Trump’s support for “a radical reduction in interest rates,” he must allow the Fed to make its own decisions based on data, not political pressure, or risk serious consequences. One hopes that not even President Trump would take on that level of risk during his presidency.
As of this morning, speaking on Fox Business, Scott Bessent seemed to signal a shift in the administration’s stance: “There’s nothing that tells me that [Powell] should step down right now.”
We ask if recent market volatility was a broad market correction or a reallocation within and among asset classes. Or is something else driving volatility because of disruption (AI, tariffs, wars, federal deficits)?
FL Gov DeSantis is trying to take the USF Sarasota-Manatee campus and transfer it to New College. IMO, this would be a disaster for the Sarasota-Manatee community and the state.
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