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Oct 12, 2018

Trump says he won't fire his Fed chair. It's not clear he could: The Finance 202 I The Washington Post


By Tory Newmyer


THE TICKER
President Trump said Thursday he is not going to fire Jay Powell, even as he continued his rhetorical assault on his handpicked Fed chair amid more stock market wreckage.
But the fact that Trump even raised the specter of dumping Powell raises a surprisingly complicated question: Could he? 
Fed experts say it’s less than clear. And whether Trump has the legal authority to shake up the central bank’s leadership is one matter; steering through the political storm if he tried to execute an unprecedented purge would be another.
That such a move is a matter of discussion at all testifies to Trump’s willingness to bust presidential norms. National Economic Council Director Larry Kudlow, a Wall Street veteran, tried to offer some reassurances that the president has no intention of doing anything besides jawboning the Fed. “He has never attacked the Fed’s plan or strategy,” Kudlow told reporters Thursday, before Trump again blamed the ongoing stock market rout on the central bank's interest rate hikes. “He has never interfered with that. He is giving his opinion, and it’s an informed opinion.” 
Other Fed watchers aren’t taking it for granted.
Under the law governing the central bank, the president can remove a Fed governor only “for cause.” Courts have interpreted that standard for other independent agency posts to mean some sort of malfeasance or bad behavior. But Peter Conti-Brown, a financial historian who studies the Fed at the University of Pennsylvania's Wharton School, tells me it remains a “live issue” whether the president could invoke the clause over policy differences with Powell.

White House chief economic adviser Larry Kudlow, (AP Photo/Pablo Martinez Monsivais)
An even murkier question swirls around whether Trump could remove Powell as Fed chairman without bouncing him altogether from the Fed’s seven-member board of governors. That wrinkle owes to a quirk of the Fed’s structure: Powell occupies two positions. He’s four years into a 14-year term as a Fed governor, but he’s less than a year into his four-year term as chair. And as Conti-Brown notes, the law is silent on removing a chair.
“We have no idea what the Court would do in a legal battle royale should President Trump attempt a removal of Jay Powell for raising interest rates more quickly than Trump would prefer,” he wrote in a blog post on the subject over the summer. “My own sense would be that the Chair is not protected from removal, the Governors are, and that policy differences are not sufficient to justify a ‘for cause’ removal.”
Michael Feroli, chief U.S. economist at JPMorgan Chase, agrees that the law is “more ambiguous” about whether Trump could replace Powell as Fed chair. “Such a step would sow confusion, and it’s unclear that the Senate would quickly confirm whomever the President would name as an alternative Chair,” Feroli wrote in Thursday research note. “We don’t think such a rearrangement would have an effect on the Fed’s monetary policy decisions, but it could prove very disruptive for financial markets.”
In practice, the issue is at least as political as legal, turning on how hard congressional Republicans would push back on an attempt by Trump to remake the Fed, and whether Powell would mount a challenge of his own if the president tried to replace him.
“I think we’re in Act 1 of this drama, and it's too early to say if this is a comedy or a tragedy,” Conti-Brown tells me. “We can’t know. And what tells us where this play unfolds has everything to do with Congress, and in particular Republicans in the U.S. Senate.”

President Trump looked on as Jay Powell spoke at the White House last year. (Reuters/Carlos Barria)
Senate Majority Leader Mitch McConnell (R-Ky.) isn’t rushing into the breach. He declined to weigh in during an interview Thursday with NPR. “Well, I can only speak for myself. I generally avoid commenting on the market. It goes up and it goes down. Or giving the Fed advice,” he said. But Sen. Patrick J. Toomey (R-Pa.) said he disagreed with the president's criticism. “We’ve waited way too long for the Fed to begin normalizing interest rates. I’m glad that they finally have begun that process,” the Senate Banking Committee member said, per the Washington Examiner.
Powell himself has brushed off the attacks. At his most recent news conference last month, he said the central bank doesn’t “consider political factors or things like that. And that’s who we are. That’s what we do. And that’s just the way it’s always going to be for us.”
David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution, says Powell knew the attacks were coming. “He was braced for this,” Wessel says. He nevertheless called Trump’s broadsides unsettling. “It makes you wonder what the boundaries are, and it’s not helpful on a day when the market is sinking,” Wessel said.
There would have been an easier way for Trump to ensure that the Fed kept interest rates low. But as Vox’s Matthew Yglesias notes, the president’s Fed nominees have not been particularly dovish. One still awaiting confirmation, Marvin Goodfriend, has been an inflation hawk who wants to see the central bank hike interest rates faster.
“It’s a puzzle to me,” Wessel says, noting Trump’s appointments could have come from a President Rubio or Bush. “It suggests that some of the people who advise the president understand the importance to the economy and his fortunes of having competent people on the Federal Reserve Board, and they’ve prevailed.”
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MARKET MOVERS

A monitor displays stock market information on the floor of the New York Stock Exchange on Thursday. (Michael Nagle/Bloomberg)
Global markets stabilize. The Post's Gary Shih: "Investor panic in Asia has subsided — for now. Markets in the region, from China to Japan to South Korea, stabilized on Friday and regained a little ground despite another bruising trading session in the United States brought on by fears that the multiyear bull-market run on Wall Street may be running out of steam. The Shanghai Composite Index bounced back from a four-year low to close up nearly 1 percent while the Nikkei surged late in the afternoon to end 0.5 percent higher. The Hang Seng Index and South Korea’s KOSPI advanced 2 and 1.5 percent, respectively. In Europe, the Stoxx 600 index also staged a recovery after three days of losses and rose about 1 percent."
Is this as good as it gets?  The Post's Heather Long: "This year’s economic performance has consistently exceeded expectations, as the stock market set records, growth accelerated and unemployment moved lower and lower. But the steep sell-off on Wall Street this week — with the Dow Jones industrial average dropping nearly 1,400 points over the past two days — underscored a growing concern among investors and economists that the economy may have nowhere to go but down.
"Almost no one is forecasting an immediate recession, but several factors appear likely to diminish the economy’s momentum. [Trump’s] trade war with China is starting to take a bite out of growth, energy prices are rising, the global economy is slowing and U.S. interest rates are going up. These forces mean Americans will be paying more to buy staples and facing higher borrowing costs to purchase a home or car or invest in a business. And foreign countries will likely buy fewer U.S. exports as demand slows and tariffs kick in."
Fed officials see more hikes. WSJ's Nick Timiraos: "The Federal Reserve has become the center of attention at the White House and on Wall Street for rising interest rates that helped knock stocks off balance this week. Inside the central bank, however, officials see broader forces—including declining unemployment, inflation’s return to normalcy and a fast-growing economy—pushing interest rates higher. Federal budget deficits, driven by tax cuts and spending increases, are also at play."
Inflation cools. Reuters's Jason Lange: “U.S. consumer prices rose less than expected in September, held back by a slower increase in the cost of rent and falling energy prices, as underlying inflation pressures appeared to cool slightly. The modest price increases come despite a U.S. labor market that looks robust by most measures... The inflation report is not likely to impact expectations the Federal Reserve will raise interest rates at its December policy meeting.”

Jay Clayton, chairman of the Securities and Exchange Commission, on Capitol Hill in Washington on Sept. 26, 2017. (Aaron P. Bernstein/Reuters)
— SEC: Earnings reporting won't change. WSJ's Dave Michaels: “Public companies won’t get a break from quarterly earnings reporting in the near term, an idea that [Trump] asked U.S. regulators to study. The Securities and Exchange Commission may weigh the idea of moving to six-month reporting for smaller firms, but ‘I don’t think quarterly reporting is going to change for our top names anytime soon,’ SEC Chairman Jay Clayton said Thursday. In August, Mr. Trump asked regulators to review the decades-old requirement that public companies release earnings quarterly, a change some executives support to promote longer-term planning.”
— Mortgage rates surge. The Post's Kathy Orton: “Mortgage rates are at their highest levels since April 2011. According to the latest data released Thursday by Freddie Mac, the 30-year fixed-rate average jumped to 4.90 percent with an average 0.5 point . . . ‘Strong employment and payroll data releases met analysts’ expectations, providing more evidence of a booming U.S. economy,’ said Aaron Terrazas, senior economist at Zillow. ‘Markets tend to move in fits and spurts, with sharp movements often followed by brief retreats, as we’ve seen over the past few days. But there is no doubt that the trend is decisively higher, and comments from several Fed officials bolstered the notion that the American economy can withstand higher rates.’”

They were once models of financial strength—corporate giants like AT&T Inc., Bayer AG and British American Tobacco Plc.
Bloomberg News
TRUMP TRACKER
TRADE FLY-AROUND:

President Trump and Chinese President Xi Jinping in Beijing on Nov. 9, 2017. (Nicolas Asfouri/AFP/Getty Images)
— Trump to meet with Xi. The Post's Danielle Paquette and David J. Lynch: “Trump and Chinese leader Xi Jinping have agreed to meet next month at the G-20 summit in Buenos Aires in hopes of resolving their intensifying trade conflict ... The planned sit-down — which Beijing sought to forestall further U.S. tariffs — would represent the first direct talks since August, as well as a temporary victory for administration moderates. Yet with U.S.-China relations fraying on an array of issues, few analysts anticipate a major breakthrough. ...
"The meeting represents a short-term triumph for U.S. officials who want to conclude the trade war before economic damage spreads, including Treasury Secretary Steven Mnuchin and Larry Kudlow, the director of the National Economic Council. Chinese officials hope they can circumvent hard-liners, such as U.S. Trade Representative Robert E. Lighthizer and Peter Navarro, a White House trade adviser, by making a personal appeal to Trump in Buenos Aires.”
Treasury finds China isn't a currency manipulator.  Bloomberg's Saleha Mohsin and Jenny Leonard: "The U.S. Treasury Department’s staff has advised Secretary Steven Mnuchin that China isn’t manipulating the yuan as the Trump administration prepares to issue a closely watched report on foreign currencies, according to two people familiar with the matter. The conclusion, if accepted by Mnuchin, would avert an escalation of the U.S.-China trade war and remove a source of anxiety for emerging markets. Mnuchin could issue a different finding."
Trump says he can hurt China more. Reuters: “Trump warned on Thursday there was much more he could do that would hurt China’s economy further, showing no signs of backing off an escalating trade war with Beijing. . . . Trump imposed tariffs on nearly $200 billion of Chinese imports last month and then threatened more levies if China retaliated. China then hit back with tariffs on about $60 billion of U.S. imports. ‘It’s had a big impact,’ Trump said in a Fox News interview. ‘Their economy has gone down very substantially and I have a lot more to do if I want to do it.”
— Business group campaigns against tariffs. Reuters's Ginger Gibson: “A coalition of U.S. business groups fighting [Trump’s] trade tariffs has launched an advertisement aimed at telling voters ahead of the midterm elections that the measures are costing American businesses and consumers $1.4 billion a month. . . . The group, which branded itself ‘Tariffs Hurt the Heartland,’ crunched tariff payment data by state and nationally and provided the findings first to Reuters. ‘These tariffs are taxes on American businesses and consumers,’ said group spokeswoman Angela Hofmann. ‘They aren’t paid by other countries. They are paid here at home.’ It is targeting members of Congress in the ‘Heartland,’ including Ohio, Pennsylvania, Illinois, Indiana and Tennessee.”
— Administration plans more trade talks. Reuters: “U.S. Trade Representative Robert E. Lighthizer told members of Congress this week that the United States wants to open trade talks with the European Union, United Kingdom, Japan and the Philippines, but did not give any indication of when the administration will give formal notice . . . Lighthizer met with key senators on Wednesday to discuss the plans, according to two congressional aides briefed on the talks. The meeting with senators was also a formal requirement before the government can send an official notice of launching talks. Lighthizer also said the U.S. government would like to start talks with the four key trading partners, but did not indicate when the administration will give notice.”

Canadian Prime Minister Justin Trudeau in Ottawa on Sept. 17. (Chris Wattie/Reuters)
— Canada pessimistic about metal tariffs. Reuters's David Ljunggren: “Canada does not hold out much hope that Washington will quickly lift tariffs that it imposed on steel and aluminum exports and is resisting a U.S. push to agree to strict quotas . . . The government of Canadian Prime Minister Justin Trudeau is pessimistic about the chances of the tariffs being removed soon . . . Trudeau, who tried and failed to have the punitive measures removed before the USMCA negotiations ended on Sept 30, said last week he was pressing Washington hard to remove the tariffs.”
— Economists: New NAFTA won't change much. WSJ's Harriet Torry: “The new U.S. trade pact with Canada and Mexico is unlikely to boost economic growth or manufacturing employment, according to most economists surveyed by The Wall Street Journal. . . . The Trump administration hopes the agreements will boost U.S. manufacturing and cut the U.S. trade deficit with Mexico. . . . Yet among dozens of economic forecasters surveyed in recent days, just over 70% of respondents said they expected no change to the U.S. economy’s long-run economic growth rate as a result of the new trade agreement, which is still subject to legislative approval in all three countries. . . . Nearly 10% of survey respondents said the USMCA would cause a decline in potential U.S. economic growth, while nearly 20% predicted a modest increase.”
MELTDOWN WATCH:
Dina Powell won't head to the UN. The Post's Ashley Parker and Felicia Sonmez: "Former White House aide Dina Powell is no longer in the running to succeed Nikki Haley as U.S. ambassador to the United Nations, a senior White House official and a person familiar with the matter said Thursday. The news removes from consideration a former deputy national security adviser and current Goldman Sachs executive who [Trump] had told some advisers was his preferred choice for the job. Powell withdrew her name Thursday in a 'warm' phone conversation with Trump, according to the person familiar with the situation. She will likely remain an unofficial outside adviser, the person said, adding that it was 'just the wrong moment' for Powell, who has a young family and a job she loves at Goldman Sachs."
Trump scolds Cohn. CNBC's Jeff Cox: “Trump took a shot at his former top economic adviser Gary Cohn, suggesting in an interview Thursday that he has dirt on him that he could expose. Discussing the various leaks coming out of his administration that have been turned into multiple news stories and a few salacious books, Trump responded sharply when an interviewer on Fox News Channel's ‘Fox & Friends’ suggested that Cohn, along with former White House staff secretary Rob Porter, was one of the sources. ‘I was very good to both of them. It could have been [them leaking]. A lot of people have said that,’ the president said. ‘Gary Cohn, I could tell stories about him like you wouldn't believe.’ ”
POCKET CHANGE
— Trump dismisses stopping arm sales to Saudi Arabia. The Post's John Wagner: “Trump said Thursday that ‘it would not be acceptable to me’ to block arms sales to Saudi Arabia in response to the disappearance last week of a Washington Post columnist after he entered the Saudi Consulate in Istanbul. Speaking to reporters in the Oval Office, Trump said he was open to other actions but questioned the wisdom of not selling military weapons, saying Saudi Arabia could instead turn to Russia or China, hurting U.S. defense companies. ‘What good does that do us?’ Trump asked. . . . ‘We don’t like it, and we don’t like it even a little bit,’ Trump said. ‘But as to whether or not we should stop $110 billion from being spent in this country, knowing they have four or five alternatives, two of them very good alternatives, that would not be acceptable to me.’ ”
The Turkish government has told U.S. officials it has audio and video recordings that prove Saudi dissident and Washington Post columnist Jamal Khashoggi was tortured and then killed inside the Saudi Consulate in Istanbul this month, The Post reported Thursday night.
Trump has long-standing business ties to the Kingdom, The Post's David Fahrenthold and Jonathan O'Connell report: "Trump’s business relationships with the Saudi government — and rich Saudi business executives — go back to at least the 1990s. In Trump’s hard times, a Saudi prince bought a superyacht and hotel from him. The Saudi government paid him $4.5 million for an apartment near the United Nations. Business from Saudi-connected customers continued to be important after Trump won the presidency. Saudi lobbyists spent $270,000 last year to reserve rooms at Trump’s hotel in Washington. Just this year, Trump’s hotels in New York and Chicago reported significant upticks in bookings from Saudi visitors."

A security guard looks out of the entrance of Saudi Arabia's consulate in Istanbul. A senior Turkish official says Turkey and Saudi Arabia will form a "joint working group" to look into the disappearance of Saudi writer Jamal Khashoggi who vanished last week after entering the Saudi diplomatic mission in Istanbul. (AP Photo/Petros Giannakouris)
Business leaders distance themselves from Saudi Arabia. The Post's Jeanne Whalen reports that Western business leaders, including Virgin Group founder Richard Branson and tech investor Steve Case, are backing away from projects with the country: "Branson said he was suspending his work as a director of two Saudi tourism projects and suspending discussions with the kingdom’s sovereign wealth fund about a proposed investment in the space companies Virgin Galactic and Virgin Orbit...
"Case said he was putting on hold plans to attend a big investment conference in Riyadh later this month, and to participate in a Saudi tourism project. The website for the Future Investment Initiative conference, taking place Oct. 23-25 in Riyadh, shows dozens of top Western business officials scheduled to attend as speakers."
Viacom Inc. chief executive Bob Bakish and Uber chief executive Dara Khosrowshahi have also pulled out of the conference, as have some of its media partners, including the New York Times and CNN Business. "More than 30 other U.S. and European companies and executives listed as sponsors or speakers for the conference, including MasterCard, McKinsey & Company and Deloitte, did not respond to requests for comment Thursday," Whalen writes.
Wall Street titans still attending. Per the NYT's Mark Landler, Ken Vogel and Kate Kelly: "Blackstone’s chief executive, Stephen A. Schwarzman, remains an advisory board member and is expected to speak at the conference, which is held at the Ritz-Carlton hotel in Riyadh, where Prince Mohammed locked up hundreds of wealthy Saudis last year in what he called an anti-corruption campaign but critics said was an effort to crush dissent. Jamie Dimon, the chief executive of JPMorgan Chase, is also still planning to attend, according to people familiar with his schedule. JPMorgan has done business in Saudi Arabia since the 1930s, opened an office in Riyadh in 2006 and employs about 70 people in the country."
— Sears lenders favor liquidation. WSJ's Suzanne Kapner and Lillian Rizzo: “Some of Sears Holdings Corp.’s biggest lenders are pushing for the troubled retailer to liquidate rather than try to reorganize through the bankruptcy process . . . Sears is in talks with a group of banks, including Bank of America Corp. and Wells Fargo & Co., over emergency financing as the company prepares for a bankruptcy filing . . . The banks are willing to provide debtor-in-possession financing but only enough for Sears to sell inventory and close all its stores . . .  The negotiations remain fluid and were continuing Thursday, however, and a different deal could be reached . . . Sears and its chief executive, Edward Lampert, who is also the biggest shareholder and creditor, want to restructure and are pushing a plan that would close hundreds of stores in bankruptcy but keep the 125-year-old chain in business.”
MONEY ON THE HILL
Adelson drops tens of millions more into midterms. Politico's Alex Isenstadt and Jake Sherman: "Las Vegas casino mogul Sheldon Adelson is pumping tens of millions of dollars more into Republican Party coffers in an 11th-hour push to save their congressional majorities, according to two senior Republicans familiar with the donation. The contributions were made to a pair of GOP super PACs tied to congressional Republicans, Senate Leadership Fund and Congressional Leadership Fund... The figures would almost certainly make Adelson, a close ally of [Trump], the biggest GOP donor of the 2018 election cycle."
Pelosi: We'll get Trump's taxes. The Hill's Michael Burke: "House Minority Leader Nancy Pelosi (Calif.) on Wednesday said that if Democrats win back the House in November's midterms, they will demand that [Trump] hand over his tax returns. Pelosi told The San Francisco Chronicle's editorial board that forcing Trump to release his tax returns 'is one of the first things we’d do' if Democrats control the Lower Chamber. 'That’s the easiest thing in the world. That’s nothing,' she said."

A partial government shutdown could result as Trump pushes for more border money without a plan to get it.
Erica Werner and Josh Dawsey
THE REGULATORS

Tesla’s Elon Musk remains committed to settling fraud charges with the SEC, according to a legal filing, despite recently mocking the case against him.
WSJ

The uproar over the incendiary writings of a Consumer Financial Protection Bureau official have led to calls for his removal, but the agency’s interim chief says he won’t “let any outside group dictate who works here.”
American Banker
DAYBOOK
Coming soon
THE FUNNIES
— From The Post's Tom Toles: “Trump’s attack on the Federal Reserve kind of proves their point.”

BULL SESSION
Hurricane Michael leaves Florida town in pieces:
Singapore Airlines resumes world's longest flight:
Whoops: Sergeant at arms drops sword.