Unless Elizabeth Warren can persuade Joe Biden to fire Jerome Powell, the Chair is going nowhere …

Senator Elizabeth Warren, Democrat of Massachusetts, lit in, as usual, to Jerome Powell, chairman of the Board of Governors of the Federal Reserve System. Mrs Warren shared today on “Meet the Press” her dissatisfaction with Mr Powell’s handling of bank regulation in the wake of three bank failures: Silvergate Bank, Silicon Valley Bank, and Signature Bank.

Mrs Warren opposed Mr Powell’s appointment to a second term by President Joe Biden and has on one occasion referred to the Fed chairman as a “dangerous man.” The potential of increased job losses resulting from the Federal Reserve’s current monetary path has given Mrs Warren more fodder for attacks on Mr Powell’s monetary policymaking. The Fed is expected to increase the federal funds rate again in its attempts to slow down the pace of inflation. I believe that should job losses continue to occur as a result of Fed rate tightening that Mrs Warren and her fellow Democrats will attach Mr Powell, a Republican, to the pain and suffering.

However, Mrs Warren’s attacks are more politics than they are economics.

While Mrs Warren is an influential member of the Senate banking committee, she will need to get the ear of Mr Biden if she wishes Mr Powell removed from the chair. 12 USC 242 provides that the President may remove a board member “for cause.” According to Black’s Dictionary, for cause means “for reasons which law and public policy recognize as sufficient warrant for removal and such cause is legal cause and not merely a cause which the appointing power in the exercise of discretion may deem sufficient.”

Removal cannot be for arbitrary or capricious reasons. Removal has to be connected to some cause affecting and concerning ability and fitness to perform as a board member.

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The statute, however, does not speak directly to removal of a board member from the chairmanship. Would the “for cause” argument hold for a board member acting as chairman? Would there be some higher standard?

The question of removing Mr Powell from the chairmanship came up five years ago as then President Donald Trump seemed to have buyer’s remorse. Mr Trump was concerned that rates were being raised too fast thus having a negative impact on growth.

The irony is now, five years later, Democrat Elizabeth Warren appears to be in full agreement with President Trump albeit for slightly different reasons. While Mr Trump was concerned about the financial markets, Mrs Warren appeared more concerned about the labor market. The other difference here is that so far Mr Biden has not chimed in on removing Mr Powell. His failure to signal any displeasure means that Mr Powell may not have anything to worry about.

Besides, does raising the federal funds rate amount to an inability or lack of fitness for chairing the Board of Governors? The Board has three choices when it comes to rates: raise them, keep them the same, or lower them. Limiting the chairman’s monetary policy toolbox with a presidential election less than 20 months away looks more like the political state infringing on the non-political administrative state. If Congress is so concerned about the impact of raising the federal funds rate too fast, then it should consider legislation taking back more of its responsibility for regulating the currency.

I don’t see Joe Biden firing Jerome Powell and I definitely do not see Congress taking back its Article I, Section VIII power over the currency.

Alton Drew

19 March 2023