Trump cannot fire Fed Chairman Powell: Morgan Stanley

U.S. President Donald Trump may be unhappy with Federal Reserve Chairman Jerome Powell, but he has no authority to remove the central bank head from office, Morgan Stanley said.

Trump renewed his criticisms of Powell earlier this week, blaming the Fed chair for the recent market sell-off and automaker General Motors’ plans to close plants and cut jobs. Powell became Fed chair in February this year after being nominated by Trump and confirmed by the Senate.

“The President can nominate a chair but once the chair is confirmed, the president is out of it and the only way you can remove a chair from office is literally if they broke the law. Congress will have to find a cause to remove them from office through a vote and a procedure,” Ellen Zentner, Morgan Stanley’s chief U.S. economist, told CNBC’s Sri Jegarajah on Thursday.

U.S. law says Fed officials, and those of other independent agencies, can be “removed for cause,” according to a report by The Washington Post on Wednesday. The “cause” often means more than a policy disagreement with the president, the Post added.

So far, no Fed chairman has been removed by a president, according to the Post.

“So Chair Powell is here to stay. He’s not swayed by political inclinations, he’s swayed by what the data is telling him about the economy,” Zentner said at the Morgan Stanley 17th Annual Asia Pacific Summit in Singapore.

“Absolutely, this has nothing to do with politics. If the Fed pauses next year, it will have nothing to do with the message that the president has said to them,” she said.

‘Nothing to do with politics’

In a speech on Wednesday, Powell said he considers the central bank’s benchmark interest rate to be near a neutral level, which means it is neither speeding up nor slowing down the U.S. economy. That implies the Fed could be near the end of its three-year tightening cycle, Reuters reported.

That comment, which came just days after Trump’s latest criticisms, was well-received by markets: U.S. stocks surged, with the Dow Jones Industrial Average and S&P 500 flipping into positive territory for November.

Even though Powell’s latest remarks appeared distinct from from his comment in early October that the Fed was “a long way” from neutral, Morgan Stanley President Colm Kelleher said the central bank has been consistent in its management of the economy.

“I think his comments have been remarkably consistent throughout this … we’re not seeing any real evidence that that’s anything but prudence,” Kelleher told CNBC on Thursday.

But there have been signs pointing to a slowdown in growth in the U.S., which will be the reason behind the Fed potentially taking a break from raising interest rates next year, said Zentner.

She added that Morgan Stanley expects the central bank to proceed with a rate hike next month, and then two more in March and June 2019 before pausing.

“At the end of the day, if financial conditions have tightened and global growth is slowing, it’s simply harder to hike into that … After that June meeting, growth we think will be below potential and that will lead them (the Fed) to believe that they are at neutral and might have risked going beyond neutral so they need to stop there,” she added.

Morgan Stanley expects U.S. economic growth to slow to 1.7 percent in 2019 from 3.1 percent this year.

Source: CNBC