"Numbskull", "fool", "moron", "stupid".... one has lost track of the expletives Trump has used to characterise US Fed chief Jerome Powell. Can you imagine anybody such things about the RBI Governor here? There would be a pretty strong reaction. Partly, I guess Trump's outbursts have to do with the incredible powers vested in the office of President of the United States.
Trump was inclined earlier to send Powell packing for not lowering interest rates. Media reports then said that Scott Bessent, his Treasury Secretary, had stayed his hand, pointing to the possible adverse reaction of the markets. The argument was that it's not done to remove a Fed chief who displays independence.
Trump is now hinting again at the possible removal of Powell. And he seems to be on more solid ground. The issue is the $2.5 billion the Fed has spent on renovation, including a cost overrun of $700 million. Various reports have highlighted details of the extravagance, including private lifts, dining areas, marble finishes etc. What is worse, Powell is said to have misled Congress on the issue by denying features in the renovation that, it turned out, were very much there.
Frankly, Trump is on strong ground this time around. It is wrong for a Fed chief to indulge in extravagance because the Fed is in many ways the custodian of the interests of ordinary people. And going on a spending binge on renovation sends out quite the wrong signals about where the Fed stands in relation ordinary people face. Especially when the Fed is at odds with the administration, it would be appropriate for a Fed chief to be watch his steps very carefully. Powell, it appears, has tripped up. Many will see his conduct as proof of the culture of impunity that pervades the higher echelons of power.
Trump would, no doubt, be using the renovation issue as a pretext to replace Powell with somebody he finds more pliable and in line with his thinking. What does that say about central bank independence?
That, I am afraid, is an over-rated idea. Heads of central banks are unelected officials. They cannot afford to be entirely out of line with the preferences of the democratically elected authority. Where the central bank chief does not see eye to eye with the political authority on a range of important matters, either he should step down or the government should have the right to remove him.
In India, the RBI Governor serves as the pleasure of the government. More than one governor has stepped down after getting suitable signals from the government. The protection given to the Fed chief is misplaced. And ultimately it cannot help. If the President wants to go after a Fed chief, he can always find ways to do so- as the rumpus over the issue of extravagance at the Fed clearly shows.
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