Donald Trump blames Federal Reserve for economic jitters

By Irina Ivanova

/ MoneyWatch

Fed raises key interest rate

On Saturday night, Treasury Secretary Steve Mnuchin said President Donald Trump won't fire the chairman of the Federal Reserve. Less than 48 hours later, Mr. Trump said the Fed is the "only thing wrong with the economy."

That blunt criticism underscores the rising tension between the White House and the Fed as global financial markets tank.

Mr. Trump has made the stock market a key barometer of his success, pointing to its strong performance earlier this year as proof his policies are working. But as equities have slumped, he has repeatedly attacked the U.S. central bank for raising interest rates, calling it his "biggest threat" and describing it as "out of control."

More pointedly, Mr. Trump has publicly expressed regrets about appointing Jerome Powell as Fed chairman. Last week, Mr. Trump reportedly consulted advisers about firing Powell, Bloomberg reported.

The only problem our economy has is the Fed. They don’t have a feel for the Market, they don’t understand necessary Trade Wars or Strong Dollars or even Democrat Shutdowns over Borders. The Fed is like a powerful golfer who can’t score because he has no touch – he can’t putt!

— Donald J. Trump (@realDonaldTrump) December 24, 2018

For investors — and for the White House — Firing Powell would almost certainly make things worse. That would send a clear signal that the Trump administration intends to conform monetary policy to its economic agenda —something that's more likely to be seen in a developing country than in the U.S.

The Fed is traditionally protected from such political pressure to ensure that political leaders don't effectively hijack monetary policy, especially in setting the short-term interest rates that affect the cost of mortgages, credit cards, car loans and other types of borrowing.

"If Trump tries to remove Powell, it could throw the financial markets into deep chaos that makes the current market turmoil look tame," analysts at Oxford Economics said in a note.

Stocks continued their recent nosedive on Monday in a shortened trading session. The S&P 500, Dow and Nasdaq all fell by more than 2 percent, with the blue-chip index shedding 653 points to close at 21,792.

Guarding Fed independence

The Fed has two broad policy goals: keeping prices stable and promoting full employment. By contrast, it has no responsibility to keep stocks humming.

The Fed's main tool in carrying out that so-called dual-mandate is setting a key interest rate, which has a domino effect on interest rates throughout the economy. Lower rates, which encourage spending by making borrowing cheaper, stimulate economic growth, while higher rates restrict it.

Policymakers dropped their target interest rate near zero after the financial crisis that began in 2007. In late 2015, with the recovery on firmer ground, the Fed gradually started increasing interest rates. This year, it has four times raised the federal funds rate a quarter point, although rates remain historically low.

The forty-fifth president isn't the first to grumble about high interest rates. Few presidents have cheered such monetary tightening. That's precisely why lawmakers have insulated the Fed from the presidency and, largely, from Congress.

Trump: Federal Reserve thinks "our economy's too good"

The central bank is run by a rotating board of governors, who are appointed by the president and confirmed by the Senate. The body that sets interest rates is separate, composed partly of appointed governors and partly of the heads of regional Federal Reserve banks, who are elected by their peers.

Once they are confirmed, Fed governors can't be removed except "for cause," a somewhat murky turn of phrase that has never been tested. Many legal scholars believe that a policy disagreement between Mr. Trump and the Fed chief wouldn't count as "cause."

Can Trump fire Chairman Powell?

Seeking to reassure markets, Treasury Secretary Steve Mnuchin on Sunday tweeted that the president doesn't believe he has the right to fire Powell, although he disagrees with the Fed chair.

(1/2) I have spoken with the President @realDonaldTrump and he said “I totally disagree with Fed policy. I think the increasing of interest rates and the shrinking of the Fed portfolio is an absolute terrible thing to do at this time,…

— Steven Mnuchin (@stevenmnuchin1) December 22, 2018

(2/2) especially in light of my major trade negotiations which are ongoing, but I never suggested firing Chairman Jay Powell, nor do I believe I have the right to do so.”

— Steven Mnuchin (@stevenmnuchin1) December 22, 2018

However, Mr. Trump often contradicts his advisers, and it's not at all certain that he wouldn't try to remove or otherwise influence the Fed.

Fed historian Peter Conti-Brown has noted that the Fed chairman has two roles—one as head of the Fed itself, a role in which he testifies before Congress, and the other as chair of the Fed's interest rate-setting body, known as the Federal Open Market Committee.

Even if the president were to fire Powell as the Fed's board chair, the other members of the Fed's rate-setting body could elect to keep Powell as their leader, Conti-Brown said on Twitter.

As Oxford Economics put it, "Any of these outcomes would likely produce a deep state of chaos in the financial markets and within the Federal Reserve."

First published on December 24, 2018

© 2018 CBS Interactive Inc.. All Rights Reserved.

President Trump blames Fed for economic jitters

As market rout deepens, the president is ratcheting up the tension with monetary policymakers

updated 6M ago

Does America's workforce have a drug problem?

Laboratory data show that drug use in health care, retail and other U.S. industries is on the rise

1H ago

Operators of Texas "Tent City" for unaccompanied migrant children plan to close it

An official with the nonprofit organization, BCFS, said it will not accept any long-term extensions for the site, which was originally slated to close last July

1H ago

Stocks slide as Mnuchin's call with bank CEOs raises eyebrows

Treasury chief's statement on bank stability could spook investors; President Trump says Fed has "no feel" for the market

1H ago

Christmas miracle? New Jersey man wins $1 million on $5 casino bet

It was the first time in the resort's 15-year history a $5 wager netted such a prize

5H ago

President Trump blames Fed for economic jitters

As market rout deepens, the president is ratcheting up the tension with monetary policymakers

updated 6M ago

Operators of Texas "Tent City" for unaccompanied migrant children plan to close it

An official with the nonprofit organization, BCFS, said it will not accept any long-term extensions for the site, which was originally slated to close last July

1H ago

Mattis signs order to withdraw troops from Syria

The President announced Sunday that the Pentagon chief would be leaving his post two months earlier than anticipated

2H ago

2018: The year in polling – CBS News

The Trump presidency, women in Congress, #MeToo, the Kavanaugh nomination, Catholic priest abuse, guns — here's a snapshot of the year in CBS News polling

7H ago

Trump says border wall will be built with "shutdown money"

Lawmakers say they still don't have a deal to reopen the government

updated 0M ago

Russians probe mysterious hole in space capsule

A Russian cosmonaut who recently returned to Earth is revealing more details about the mysterious hole in a Soyuz capsule docked to the International Space Station

updated 10M ago

"Ring of Fire" volcano triggered deadly tsunami

The deadly tsunami that struck Indonesia​ this weekend is just the latest in a series of seismic disasters along the "Ring of Fire"

1H ago

Operators of Texas "Tent City" for unaccompanied migrant children plan to close it

An official with the nonprofit organization, BCFS, said it will not accept any long-term extensions for the site, which was originally slated to close last July

1H ago

Disgraced reporter may have embezzled donations for war orphans

Influential German news weekly Der Spiegel said Sunday it would file a criminal complaint against a disgraced reporter

1H ago

Mattis signs order to withdraw troops from Syria

The President announced Sunday that the Pentagon chief would be leaving his post two months earlier than anticipated

2H ago

Jazz legend Wayne Shorter on personal tragedy, career triumphs

At 85 the legendary saxophonist and composer shows no signs of slowing down

3H ago

Shawn Mendes: His star has taken off

How the 20-year-old Canadian self-taught musician with the megawatt smile cheerfully became one of the biggest names in pop music

Dec 23

"Silent Night": One of the Christmas season's most revered songs is commemorated on its 200th anniversary

One of the Christmas season's most revered songs is commemorated on its 200th anniversary

Dec 23

"Property Brothers" stars Drew and Jonathan Scott: All in the family

The identical twins are the reigning princes of TV home renovation

Dec 23

Ballet for special children

At a workshop by the New York City Ballet, children with disabilities can wear tutus and top hats, and experience the joy that dance brings

19H ago

Russians probe mysterious hole in space capsule

A Russian cosmonaut who recently returned to Earth is revealing more details about the mysterious hole in a Soyuz capsule docked to the International Space Station

updated 10M ago

"Ring of Fire" volcano triggered deadly tsunami

The deadly tsunami that struck Indonesia​ this weekend is just the latest in a series of seismic disasters along the "Ring of Fire"

1H ago

Upcoming app aims to give you big leg up in online privacy battle

FigLeaf's offering seeks to let you learn where your personal data's been been leaked across the internet and arm you with new tools to stay private

5H ago

In esports, parents push young players to excel

Forget soccer or piano lessons – these days, some parents are encouraging their kids' interest in video gaming

7H ago

SpaceX launches Air Force's most powerful GPS satellite ever built

Running five days late, SpaceX launched a next-generation navigation satellite Saturday

Dec 23

Does America's workforce have a drug problem?

Laboratory data show that drug use in health care, retail and other U.S. industries is on the rise

1H ago

Blood pressure medication recalled after cancer-causing chemical found

FDA announces that Torrent Pharmaceuticals Limited is voluntarily recalling two lots of Losartan potassium tablets

Dec 23

University Of Maryland confirms 40 adenovirus cases

One student at the university has been hospitalized with the illness

Dec 22

164,000 pounds of raw ground turkey products recalled

"Consumers who have purchased these products are urged not to consume them"

5H ago

Stem cell shots tied to bacterial infections

At least 12 patients in three states became infected after getting injections for problems like joint and back pain, the CDC reports

Dec 21

President Trump blames Fed for economic jitters

As market rout deepens, the president is ratcheting up the tension with monetary policymakers

updated 6M ago

Does America's workforce have a drug problem?

Laboratory data show that drug use in health care, retail and other U.S. industries is on the rise

1H ago

Stocks slide as Mnuchin's call with bank CEOs raises eyebrows

Treasury chief's statement on bank stability could spook investors; President Trump says Fed has "no feel" for the market

1H ago

420K employees will go without pay during government shuts down

Even a partial closure would force a huge number of federal workers to stay on the clock without earning a dime

Dec 22

The tax law is 1 year old — here are the winners and losers

President Trump signed the Tax Cuts and Jobs Act nearly a year ago — so has it lived up to its billing?

Dec 21

Woman uses Rudolph the Red-Nosed Reindeer costume during burglary

Fort Collins, Colorado police released surveillance video of her committing the crime

7H ago

LSU football player kills man trying to rob him and teammate

Two LSU football players were trying to sell an electronic item when one of them fatally shot an 18-year-old man trying to rob them, police say

23H ago

"El Chapo" witness from Chicago recalls naked man "tied to a tree with a chain"

Tirso Martinez Sanchez, Jorge Cifuentes and Pedro Flores now share the notoriety of being the most recent cooperators to testify against the infamous Mexican drug lord

Dec 23

Idaho authorities cite "evidence" in case of missing Colorado mom

The body of Kelsey Berreth​ has yet to be found but authorities have arrested her fiance, Patrick Frazee​, on first-degree murder charges.

Dec 23

Mother a driving force in seeking justice for missing son

A father goes hunting in a Florida lake and vanishes. Many thought he was eaten by alligators, but not his mother — 17 years later, stunning courtroom revelations

Dec 22