JD FOSTER: Trump Is Right. Fire Jay Powell

President Trump is once again unhappy with Federal Reserve Board Chair Jay Powell following Powell’s remarks at an economic event in Chicago and following the move by the European Central Bank to cut interest rates.

On social media Trump posted, “Jerome Powell of the Fed, who is always TOO LATE AND WRONG, yesterday issued a report which was another, and typical, complete ‘mess!’ Powell’s termination cannot come fast enough!”

Naturally, the kneejerk reaction among Trump’s enemies is to raise again the guidon of Fed independence which is vital and yet not at issue. Trump isn’t dictating monetary policy. He’s criticizing monetary policy, a criticism Powell will no doubt ignore.

To be sure, it would be less unsettling if Trump conveyed his displeasure with the Fed Chair as most presidents have done before — quietly, typically using an interlocutor such as the Treasury Secretary to deliver the message. But that’s not Trump’s way.

Regarding the policy, Trump is right. As Trump has acknowledged, his avalanche of tariffs is creating additional uncertainty and turbulence. The odds of a recession, while still low, have gone up in recent months.

Though inflation has ticked up a bit, this is surely temporary and soon to be reversed.

Not that one should be overly guided by the stock market, but the recent deep slide suggests possible trouble ahead. Under the circumstances, the Fed should accelerate its policy normalization by reducing the Fed funds rate. As Trump complains, Powell is late again, as he was to responding to the post-pandemic inflation surge.

But Trump’s grievance raises a more fundamental point, which is that no president should be saddled with a Fed Chair picked by their predecessor.

To recall, President Obama nominated lawyer Powell to join the Fed in 2011. In one of his odder appointments, Trump elevated Powell in November 2017 to succeed Janet Yellen as Fed Chair. While the nomination was accompanied by the usual glowing verbiage, Trump never seemed comfortable with Powell and often publicly criticized Fed policy. President Biden was then pleased to extend Powell’s service as Chair to a term ending in May 2026.

While disagreements abound regarding Fed policy, few dispute the importance of the Fed to the nation’s economic future nor the pre-eminence of the Fed Chair in making Fed policy.

So why does Trump, or any president, have to wait over a year before installing a Fed Chair consistent with their own views?

The short answer is that the law says so, but this suggests a badly needed reform. The Fed Chair’s term should expire at the beginning of a president’s term, with the Chair continuing to serve until relieved by the president or until a successor is confirmed by the Senate.

Fed policy is fundamental to how the U.S. economy develops in terms of inflation and unemployment, the two pillars of the Fed’s “dual mandate.” But monetary policy operates with a substantial lag.

President Trump (and any Republicans running in near-future elections) will be held responsible for how the economy performs. Trump’s nominee to replace Powell next year may change Fed policy quickly regarding the funds rate, quantitative tightening, etc., but the consequent effects won’t materialize in force until 2027 and beyond.

Trump, and all future presidents, should be able to choose their own Fed Chair immediately upon taking office. If you’re going to own the wins and losses, then you should be able to pick the players.

JD Foster is the former chief economist at the Office of Management and Budget and former chief economist and senior vice president at the U.S. Chamber of Commerce. He now resides in relative freedom in the hills of Idaho.

The views and opinions expressed in this commentary are those of the author and do not reflect the official position of the Daily Caller News Foundation.