Chartbook 376 Trump trolling the Fed chair, whilst legal warfare rages over America's administrative state. Is America nearing stage 4?

Yes, the President of the United States did start his day on Thursday April 17 2025 by taunting Jerome Powell, the Chair of the Federal Reserve, the world’s most powerful central bank and anchor of the dollar system. And yes, he did call for Powell’s “termination” as soon as possible.

Is this what I warned about in Chartbook 374 at the weekend? The slide into open political warfare over financial markets and monetary policy: Stage 4 in the disintegration of the foundations of the dollar system?

So far the reverberations of trade policy into financial markets were powerful but indirect. The medium-term effects of tariffs will take time to make themselves felt in the real economy. Monetary policy is an even more sensitive area of economic policy than trade policy. If Trump chooses to escalate his clash with Powell and actually pushes for his early removal, are we about to witness an all-out clash with much greater risk of immediate fall out in financial markets, the most volatile part of the economy system?

As of Thursday morning, as egregious as this flare up may seem, the jury is still out.

Trump’s behavior towards Powell is as abusive and bizarre. But it is not new. Though Trump appointed Powell to replace Janet Yellen in his first term, relations became very edgy in 2018 and 2019. So, in this regard, this morning’s abuse is not so much a shocking novelty as a return to a familiar abusive pattern.

Furthermore, the financial background against which the clash between Trump and Powell is taking place, is quite different from the scenario that was on our minds at the weekend.

After the turbulence in the Treasury market last week, the scenario I sketched on Saturday started with market stress morphing into market malfunction, forcing the Fed’s hand.

Instead, this week we got something closer to the opposite. Markets have calmed and they have continued to function more or less smoothly.

There is much more to be said about corporate bond issuance, junk-bonds etc. What is going on in high-yield markets is really bad news as far as the US economy is concerned. I will come back to it in a future post. But corporate bonds are not at the heart of the Trump-Powell clash. What matters is Fed policy towards interest rates.

It was precisely the calming of the financial markets that allowed Powell on Wednesday in conversation with Raghuram Rajan, former governor of India’s central bank and Chicago Booth professor, to take a relatively hawkish position, more or less openly criticizing Trumpia tariffs, whilst rejecting the suggestion of urgent Fed action, whether through interest rate cuts or otherwise. Compared to the action being taken by both the ECB and the PBoC this infuriated Trump who wants interest rate cuts to offset the damage his tariff policy is doing to the US economy. Hence the outburst.

The President’s frustration has been immediately taken up by Trump-aligned financial commentators like zerohedge, who highlight what they claim is the far more cooperative stance of the Fed towards the Biden administration.

But, naked as it may be, this is also the familiar politics of economic populism: a willful President railing against the constraints imposed by independent and conservative-minded institutions.

The sniping will likely continue. The question is does it escalate into a full-scale pitched battle?

It is hard to see how it would behoove Trump to escalate the showdown with Powell over the immediate issue of interest rates. Powell has already made clear that he intends to die on this hill.

But, in the background a very major conflict is brewing. As Bloomberg reported :

The president’s ability to remove top officials at agencies that had long been viewed as having a measure of independence from the White House has come into acute focus in recent months, after the administration dismissed senior officials at the Federal Trade Commission, the National Labor Relations Board and Merit Systems Protection Board.

The notion of agency independence goes back in US administrative law to a Supreme Court ruling of 1935 in a case known as “Humphrey’s Executor” which barred FDR from firing a FTC commissioner.

The threat is that the MAGA campaign against the administrative state as such extends to the Fed.

This campaign has both a partisan edge: rooting out the liberal centerist establishment that obstructs Trump. But beyond the immediate resentments of the Trump camp, the attack on independent agencies involves reenvisioning both the history and the future of the American state.

As Andrew Ferguson who was Trump’s appointee to head the FTC put it to Axios:

"I agree with every word of the Acting Solicitor General's letter. Humphrey's Executor was wrongly decided, is deeply anti-democratic, and ought to be overruled," Ferguson told Axios in an exclusive statement. "I will be making a motion to ask my fellow Commissioners to agree to align the FTC's position on this issue with the President's position," he said.

The basis of the conservative case against Humphrey’s Executor is that it unduly infringes on the unitary executive branch. As one conservative commentator remarks:

That recent case had recognized that “the holding of Humphrey’s Executor applies only to administrative bodies that do not exercise ‘substantial executive power.’” On top of that, the Court “explained that Humphrey’s Executor appears to have misapprehended the powers of the ‘New Deal-era FTC’ and misclassified those powers as primarily legislative and judicial.” She then goes on to cite the Acting Solicitor General’s letter: “The exception recognized in Humphrey’s Executor thus does not fit the principal officers who head the regulatory commissions noted above. As presently constituted, those commissions exercise substantial executive power, including through “promulgat[ing] binding rules” and “unilaterally issu[ing] final decisions * * * in administrative adjudications.” Seila Law, 591 U.S. at 218-219. An independent agency of that kind has “no basis in history and no place in our constitutional structure.” Id. at 220; see id. at 222 & n.8.”

This is fundamentally a legal battle and is best explained by financially-savvy lawyers. No one is better placed to do this than my colleague Lev Menand, who, recently, gave an interview on Fed independence to the indispensable Odd Lots.

As Powell made clear in his comments in Chicago on Wednesday, the FTC and NLRB cases are very much on the Fed’s mind.

Powell made reference Wednesday to a current Supreme Court case with regard to the removal of the NLRB and MSPB officials. “There’s a Supreme Court case. People will have read probably” about it, Powell said in answering questions at the Economic Club of Chicago. “That’s a case that people are talking about a lot. I don’t think that decision will apply to the Fed — but I don’t know,” he said. “It’s a situation that we’re monitoring carefully.”

It isn’t Trump alone who sees this as a trial of strength. Centrist institutionalists do too. When the Trump administration moved against the FTC’s commissioners, this is how Bloomberg reported the story.

On Tuesday, the Trump administration dismissed the Federal Trade Commission’s two Democratic commissioners, Alvaro Bedoya and Rebecca Kelly Slaughter. The firings are the most direct challenge yet to a 1935 Supreme Court decision that paved the way for the independent agencies that now populate the US government. The ruling, known as Humphrey’s Executor, let Congress give FTC commissioners job protections that shield them from dismissal except for neglect or malfeasance. In an interview with Bloomberg TV, Slaughter, who plans to sue, said her dismissal has ramifications beyond the antitrust and consumer protection agency. “There is no legal difference between Jerome Powell and me,” she said. “If the president can legally remove me, he can legally remove Jerome Powell.”

In other words, in an effort to raise the stakes in their own cases, the commissioners dismissed from the FTC are themselves bringing the Fed into play.

Deescalation on the other hand will likely involve doing the opposite. As Joe Weisenthal archly observes:

For further elaboration of this legal point I recommend the SCOTUSBlog in which Ellena Erskine interviews Stephen Vladeck (Georgetown University Law Cente). Their conversation about Humphrey’s Executor culminates with the Fed:

You mentioned the Fed before, where does the Fed stand?

Part of why I believe that even this court has been reluctant to overrule Humphrey’s Executor, and it’s had chances, is because I think there is an unspoken but widely shared view that the independence of the Fed (and no other agency) is really important. I don’t think the court has yet been provided with a coherent rationale for a way in which it could overrule Humphrey’s Executor without also undermining the independence of the Fed, and thereby risking yet further harm to the stability of our economic system.

Of course, these cases are not just about the FTC and the Fed — there are a bunch of multimember-headed agencies, the SEC, the FCC, the Merit Systems Protection Board, etc., that are implicated by Humphrey’s Executor. But I think the real 800-pound gorilla is the Fed. Maybe it’s enough to just assert that the Fed is different, but at least to this point, there’s been no persuasive explanation for why, legally, that’s so.

As the challenge to the administrative state gathers pace, the Democrats are beginning to rally in opposition.

When Trump moved against the National Labour Relations Board it triggered investigative action by Bernie Sanders.

This morning, Trump’s attack on Powell is rallying what is left of the Democratic party leadership. Schumer bestirred himself to post on twitter that he condemned
”the president’s comments, posting on X that “an independent Fed is vital for a healthy economy— something that Trump has proved is not a priority for him.””

Elizabeth Warren issued an even more stark warning.

So this is the dialectic we seem to be caught in. MAGA exponents attack core state institutions in the name of democracy and the Democratic party rallies in defence of independent state agencies, hopes for favorable Supreme Court rulings and, if the worst comes to the worst, relies on markets to deliver the ultimate verdict.

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