Donald Trump doesn’t like Jerome Powell. And he was the one who chose him to lead the Federal Reserve, the Fed, in 2018. However, the Republican is convinced that the Fed chairman has sided with the Democrats and is determined to do little less than destroy the American economy, first by raising rates at a speed never seen in the last 40 years and, later, by resisting making the first cut, which seems likely to come no later than after the summer at the earliest. Although back in February he accused him of wanting to lower rates to help the Democrats.
No matter what Powell does, the relationship between the two is broken and Trump announced weeks ago his intention to remove the Fed chairman. But he later changed his mind, and in an interview with Bloomberg promised to keep him at the helm of the central bank… Although the conversation was published in mid-July, it was recorded before Trump was assassinated and his popularity soared to unprecedented levels, increasing his chances of winning the election.
Whatever his final decision, Trump already has a list of candidates to replace Powell. Although removing the Fed chairman is not easy, there are mechanisms to do so.
Of course, everything depends on the need for the Republican Party to win the presidential elections by a large majority, taking control of the Senate. This scenario was unthinkable three weeks ago, but now the fight between Kamala Harris and Donald Trump is close.
Trump has prepared the list of substitutes, which he consults with his political allies at the Republican National Convention. Although it is a complex process.
With no vacancy on the central bank’s board, it would first be forced to appoint one of the current governors, with Christopher Waller and Michelle Bowman being the leading candidates, since both are Republicans. This would be an interim appointment pending a vacancy on the board.
The US president can always push for a governor to resign and vacate his post, paving the way. Everything will depend on the power that the future occupant of the White House has at that time.
Candidates
Kevin Warsh, former Federal Reserve Board member.
Expansion
Among the names Trump is considering to replace Powell is Kevin Warsh, who was already on the shortlist in 2017 and served on the Fed board between 2006 and 2011. Although he began his career at Morgan Stanley, he soon opted for a more institutional and political profile, becoming a member of the Republican Party. He is currently a professor at Stanford and an advisor to the Congressional Budget Office.
Arthur Laffer, economist advisor to Ronald Reagan.
Expansion
Also on the short list is Arthur Laffer, former economic advisor to Ronald Reagan and inventor of the so-called Laffer Curve, which is studied in all business schools. The theory is that there is a tax rate that can maximize revenue collection and, once that threshold is exceeded, tax revenues fall even if taxes are increased.
The problem with Laffer’s appointment is his age, as he is 83 years old and would take over the reins of the central bank after turning 84, for a four-year term.
The third candidate is Kevin Hassett, former chairman of Trump’s economic council from 2017 to 2019. He was also an advisor to John McCain in the 2000 presidential primaries and is the author of several economics and finance textbooks. In 1999, he predicted that the Dow Jones would reach 36,000 points within five years. Although the index has surpassed that level, the reality is that it took more than two decades to achieve it.
Expansion
With any of these three names, Trump would secure control of the Federal Reserve, since all three economists are within the Republican Party sphere.In addition to being able to influence the country’s monetary policy, it would also be responsible for shaping new regulations to adapt capital requirements in American banking to Basel III.
This is one of the most controversial issues and has sparked a real war between the big banks and the Federal Reserve in recent months.
Trump’s position is aligned with the interests of the banking sector, which is seeking a regulation that increases the new capital requirements as little as possible. The Republican could leave them as they are now, compared to Powell’s proposal, which involves raising them by between 3% and 5%, after lowering its initial plan, which contemplated a 20% increase, which unleashed the fury of the sector.
