Why is media talking about Trump firing the Fed chief?

One is intrigued by the incessant speculation in the media about Trump's firing Fed Chairman Jay Powell once Trump is sworn in as president later this month. Kenneth Rogoff resurrects this speculation in a recent article but is quick to shoot down the possibility. 

By law, the Fed Chairperson has a fixed tenure. The President does not have the legal right to fire him or her. Of course, the President can get Congress to amend the law so as to enable to the President to fire a Fed Chief. But pushing through such legislation will not be easy despite the fact that Mr Trump is riding high at the moment. Opposition from Congressmen apart, Mr Trump has to risk with the damage such a move could inflict on the financial markets. Mr Powell, for his part, has said he has no intention of resigning.

Mr Trump can, of course, seek to undermine Mr Powell by criticising his moves. But he did so in his first term without inflicting any serious damage to the functioining of the Fed. Central bank independence does not mean the political authority cannot air its differences with the central bank in public. 

There is the larger question of whether the central bank chief must serve at the pleasure of the government. That is the case in India. It is open to the government to ask the RBI Governor to go- and without assigning reasons. That does not mean that is easy for any government to do so- as I mentioned earlier, the credibility of the central bank and the damage to financial markets and the economy are considerations that no government can brush aside. It's not easy to ask an RBI Governor to go even if the government has the authority to do so.

That apart, the RBI is not in the same position as the Fed. The Fed focuses on monetary policy and has some responsibility for bank regulation. The RBI is a full-scope central bank encompassing monetary policy, bank regulation, exchange rate management, government borrowings, currency management etc. Independence of the central bank is about independence in monetary policy. Such independence cannot extend to the other areas for which RBI has responsibility.

Lastly, chemistry at the top is important. The head of government must have a certain degree of comfort with the central bank chief . Where that comfort level is not there, the government should have the right to replace the central bank chief. That is not to say that the central bank chief must be a stooge of the government- no intelligent head of government would even want that because ultimately politicians in a democracy do feel the need to deliver. And they would understand that having an independent central bank is crucial to that objective.