SAN FRANCISCO (Reuters Breakingviews) - The Federal Reserve’s stability is now an outlier in the American government. On Wednesday Gordon Sondland, the U.S. ambassador to the European Union, implicated not just President Donald Trump, but also Vice President Mike Pence and Secretary of State Mike Pompeo in testimony for the House impeachment probe. The central bank’s resilience and independence is a comfort for investors, but Trump has the power to upend that, too.
Sondland said he was following Trump’s orders in pushing Ukraine to announce a probe into former Vice President Joe Biden, now a Democratic presidential candidate for 2020, and his son. He also said Pence, Pompeo, acting White House chief of staff Mick Mulvaney and Energy Secretary Rick Perry were either part of the efforts or aware of them.
Other agencies have experienced turmoil under Trump. The Justice Department is on its second attorney general in a row to be accused of acting like the president’s personal attorney. There have also been leadership changes at the Departments of Defense, Homeland Security and Labor.
By contrast, the Fed’s leadership has been consistent and firm in prohibiting political interference in decision-making. Trump has pushed for negative interest rates and repeatedly attacked central-bank boss Jay Powell, even questioning whether he was a “bigger enemy” than Chinese President Xi Jinping. On Monday, in a rare meeting that Trump requested, he again pressed Powell on rates.
The Fed’s independence has been important for the stability of the economy, which has been buffeted by trade wars. In July, Powell, whose four-year term expires in 2022, said he wouldn’t resign if Trump requested it, indicating that the president would have to fire him to get rid of him.
Legal experts believe he could only be fired “for cause,” meaning he committed an illegal act. But the worry is that the president may become more impulsive as the impeachment hearings intensify and as the pressure of trying to win re-election next year grows. One way to distract from the congressional probe would be to threaten Powell’s job security. The one silver lining for investors is that the Fed’s board is made up of members who would probably follow the chairman’s lead.
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