David M. Drucker: Firing Powell is too risky -- even for this White House

Donald Trump is hardly the first president to pressure the Federal Reserve to lower interest rates or take some other action the White House deems necessary to boost the economy and shield the commander-in-chief from the fallout that comes when voters can’t make ends meet.

President Lyndon B. Johnson did it 60 years ago, summoning William McChesney Martin, then chair of the board of governors of the Federal Reserve System, to his Texas ranch to make his case for lower interest rates. Twenty years earlier, President Harry Truman had his own tete-a-tete with the Fed, pushing for lower borrowing rates against two different chairs, Marriner Eccles and Thomas McCabe (both resisted amid concerns about post-World War II inflation).

“There is precedent for presidents leaning on Fed chairs and the [Federal Open Market Committee] to try to get lower rates,” George Washington University political science professor and coauthor of The Myth of Independence: How Congress Governs the Federal Reserve Sarah A. Binder tells me. “But of course, Trump is an 11 on the scale of 1 to 10.”

Given this history, why are Trump’s attempts to bully the Fed and current Chair Jerome Powell being greeted with such shock and alarm? Perhaps it has more to do with the in-your-face nature of his rhetoric and his preferred method of communication (social media) than the attacks themselves. Perhaps it’s because Trump’s bid to undermine the independence of the Federal Reserve System and its board of governors follows roughly a quarter century of presidents — Bill Clinton, George W. Bush and Barack Obama — being generally deferential to the Fed.

Or perhaps it’s because Trump has repeatedly threatened to fire Powell — whom he appointed to a four-year term in 2017, and whom former President Joe Biden reappointed — despite appearing to lack the legal authority to do so. (Granted, the law is somewhat murky.) Regardless: Is Trump’s belligerence toward Powell, on display last week during a joint walk-through of the renovation of Fed headquarters in Washington, worth his investment of political capital?

Brad Todd, a veteran Republican strategist, believes as much. “I think it’s a three-fer,” Todd, coauthor of The Great Revolt: Inside the Populist Coalition Reshaping American Politics, told me.

“First and foremost, it helps him with affordability, which is an item that is cutting across party lines. If people cannot afford a mortgage, they want to see lower interest rates. It’s just a straight, good economic play — if you’re a small business, they know exactly how much they’re spending on interest payments,” Todd explained. “No. 2, he’s being disruptive and a man of action who’s pushing the Washington establishment — the Fed is the Washington establishment. So, he’s being an outsider who’s pushing for action on behalf of consumers.”

Finally, Todd noted that Trump’s Fed fight satisfies a small but boisterous element of his populist political base that has always been suspicious of the Federal Reserve and favored auditing the system, if not abolishing it altogether.

But like any investment, whether of political capital or of the kind that reads “Federal Reserve Note” at the top, there is downside risk. And as usual, Trump is playing with relatively small political margins. As this week dawned, the president’s job approval rating averaged 45.4%, better than where he stood at this point in his first term but not stellar. Trump is particularly hurting with independents. Only 29% give him positive marks in the latest Gallup survey.

Independents tend to want a chief executive who governs effectively and produces good economic and public safety outcomes. Constantly jabbing at the Fed and taking aim at Powell’s job smacks of the same sort of chaos and instability that exhausts independents and can turn them (and moderate Republicans) against the president’s party. That’s a not so insignificant dynamic heading into this November’s key off-year elections in New Jersey, Virginia and elsewhere, and next year’s midterm elections to determine the balance of power in Congress.

“The vitriol could be very damaging, the more he keeps this up,” longtime Democratic pollster Joe Trippi told me. Trippi made the case that Trump’s polarization of yet another government institution, and one so central to the well-being of the economy, may be a home run with the GOP base but stands to backfire with independents and some old-school, Reagan-era conservatives, who recoil at the “politicization of everything.”

“It’s hurting him,” Trippi said.

It’s worth noting that none of the political professionals I spoke with argued to me that Trump is risking a backlash because the Federal Reserve is some beloved government institution or because Powell is a revered national figure.

There is one area where both Democratic and Republican insiders agree: the president is courting political peril because of how the markets would respond to any attempt to sack Powell and exert more direct political control over the Fed. The assumption is that markets would react negatively, inflicting immediate and lasting damage to the economy — a development that voters would almost assuredly be quite unhappy with.

That might be why Trump’s talk about replacing Powell before his term as Fed chairman expires in May has been just that: Talk. On Sunday, the president’s budget chief, Russ Vought, told CNN’s Jake Tapper that “the patience that the president has demonstrated towards Chairman Powell is in fact a defense of” the Fed’s independence. While reasonable people could quarrel with Vought’s definition of “patience” and “defense,” the fact remains that Trump has left Powell in place. And with the economy on the line, that’s where he’s likely to stay — at least for now.

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This column reflects the personal views of the author and does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

David M. Drucker is columnist covering politics and policy. He is also a senior writer for The Dispatch and the author of "In Trump's Shadow: The Battle for 2024 and the Future of the GOP."