WASHINGTON — The stock market has taken in stride the almost daily drumbeat of President Donald Trump's attacks on Federal Reserve Chair Jay Powell, caring more about how the two men tackle their respective jobs than how they handle each other.
Trump is unhappy with Powell and the Fed for raising interest rates too high last year while central bankers in other countries keep rates low to support their economies. Whether Trump would fire Powell — or can legally — has been the subject of debates on the financial news networks, sometimes involving Trump himself.
Doing so would be unprecedented, and experts say that's why the markets need to take a wait and see approach, even though they have a large stake in who runs the Fed, and how.
"Events have taught us that your ability to anticipate something that's never happened before is very low, you're not going to be right," said Steve Chiavarone, equity strategist at Federated Investors.
In his latest criticism, Trump said in an interview on the Fox Business Network Wednesday that he "made" Powell but now would like to trade him in for Mario Draghi, the head of the European Central Bank. Draghi said last week that he was prepared to provide more stimulus if necessary to support the lagging European economy.
After raising rates four times last year, which Trump and some on Wall Street have blamed for a big drop in stocks in last year's fourth quarter, most investors believe Powell and the Fed are on track to do what Trump wants anyway — cut interest rates — to help protect the U.S. economic expansion. Ironically, Powell says the biggest threat the Fed sees to the economy is the trade war Trump is fighting with China.
In May, Trump's decision to raise existing tariffs on Chinese goods and threaten additional import taxes contributed to a 6.6% decline in the S&P 500 index. But Powell's recent intimations of a coming rate cut helped send the S&P 500 back to a record last week.
In his interview Wednesday, Trump did not acknowledge the Fed's change in policy. And Trump again insisted he had the right to demote Powell or to fire him, something that legal experts dispute. They contend that Powell can only be removed for malfeasance in office, not for a policy dispute. Powell's term as chairman runs until February 2022.
If Trump did try to remove Powell, it would likely hurt the market in the long term because it would damage the Federal Reserve's independence, said Chiavarone. But he's hesitant to predict what it would mean in the short term, particularly because Trump would likely replace Powell with someone who would be quick to cut interest rates.
Investors see lower rates as jet fuel for stock prices, so the initial market reaction may be to send stocks even higher.
Mark Zandi, chief economist at Moody's Analytics, said the market would likely become worried if Trump succeeds in getting close political allies on the seven-member Fed board.
After announcing he planned to nominate conservative commentator Stephen Moore and former GOP presidential candidate Herman Cain to the two Fed vacancies, those two candidates withdrew from consideration after the possibility that they would join the Fed generated heavy opposition.
"At the moment, markets see this as much ado about nothing but this could change quickly if the president succeeds in packing the Fed with his partisans," Zandi said.
Zandi also said that foreign investors might become worried about the attacks on Powell before U.S. investors do.
"We rely on global investors to buy our stocks and bonds and I think they are growing more wary. They may be the first to react," Zandi said.
Trump said Wednesday that one reason he's unhappy with the Fed's rate hikes was that it raises the cost of borrowing for the federal government.
"I want to pay it off," Trump said of the debt, a pledge he had made during the 2016 presidential campaign. The growth of the $22 trillion national debt has accelerated under Trump whose last budget projected annual deficits would top $1 trillion beginning this year.
Trump's latest Fed attack came a day after Powell made his most extensive comments on the Fed's need for political independence to do its job.
Asked about the repeated criticism by Trump, Powell said, "We are human. We make mistakes. I hope not frequently but we will make mistakes. But we won't make mistakes of integrity or character."
Powell said that the Fed's independence from direct political control had served the country well and when central banks do not have that protection "you see bad things happening."