Trump’s Fed feud roils markets, alarms Republicans

President TrumpDonald John Trump2020 Democrats spar over socialism ahead of first debate Senate passes .5 billion border bill, setting up fight with House 'Teflon Don' avoids the scorn of the 'family values' GOP — again MORE’s intensifying attacks on Federal Reserve Chairman Jerome Powell are having a destabilizing effect on financial markets and rattling Republican lawmakers.

Trump's criticisms of the central bank’s chief policymaker kicked into high gear Monday, not long after Treasury Secretary Steven MnuchinSteven Terner MnuchinFive things to watch as Trump heads to G-20 in Japan Mnuchin: We were 'about 90 percent of the way there' on China trade deal The Hill's Morning Report - Democratic debates: Miami nice or spice? MORE tried to reassure markets by insisting Trump has no intention of firing Powell.

Trump has undercut that claim by blaming the Fed for market volatility and recent economic woes.

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The Dow Jones Industrial Average plunged 653 points on Monday in the worst day-before-Christmas stock performance in history as Trump renewed his attack on the Fed for raising interest rates last week. The S&P entered a bear market and is now down more than 20 percent from its August peak.

Economic experts say Trump is having a destabilizing effect on markets, and GOP lawmakers have publicly urged him to tread more carefully in his public remarks about the Fed, an independent institution.

Vin Weber, a former economic adviser to Mitt RomneyWillard (Mitt) Mitt RomneyDon't expect Trump-sized ratings for Democratic debates Mitt Romney: Rape allegation against Trump should be 'evaluated' Senate panel advances bill to restrict emergency arms sales MORE’s 2012 presidential campaign, warned against taking drastic measures, saying firing Powell would provoke a “very bad” reaction.

“People, regardless of their views on monetary policy, would view that as an assault on the independence of the Fed and it would shake confidence considerably,” he said Monday.

Trump’s attempts to influence monetary policy, Weber said, are likely to backfire because they will only make the Fed’s job more difficult as it tries to maintain its credibility and independence.

“The president is creating an impossible situation for the Fed because anybody appointed to the Board of Governors of the Fed has to have among their priorities preserving the independence of the Fed,” he said. “Everybody would be really rattled if they thought the Fed was not operating as an independent institution.”

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“So when the president is so vocal in criticizing the Fed, he almost forces them to prove their independence by going against him or making a very public show of not doing what he wants,” Weber added.

Axel Merk, the president and chief investment officer at Merk Investments, a firm based in Palo Alto, Calif., said Trump wants to blame the Fed for what Goldman Sachs and JPMorgan Chase project to be an economic slowdown in 2019, right before his reelection.

“There's no way for the Fed to ‘win’ this,” Merk said. “The Fed will be blamed for a market turning down or for a recession. Trump needs a fall guy, and Powell at the Fed is perfect for that.”

Trump often bragged about the stock markets’ soaring performance in 2017 but has mentioned the markets less frequently this year as they have missed the lofty expectations set by Republicans passing tax reform a year ago.

Mnuchin tried to calm markets over the weekend by tweeting that Trump concedes he doesn’t have the power to fire Powell, but the lack of a similar statement from the president left that assurance ringing hollow.

Trump then went on the attack Monday, tweeting “the only problem our economy has is the Fed.”

“They don’t have a feel for the Market, they don’t understand necessary Trade Wars or Strong Dollars or even Democrat Shutdowns over Borders. The Fed is like a powerful golfer who can’t score because he has no touch - he can’t putt!” the president tweeted.

Mark Zandi, the chief economist at Moody’s Analytics, warned Monday that Trump’s war with the Fed is shaking the stock market.

“Investors are increasingly spooked by the president’s wrong-headed attacks on the Fed and the Treasury Secretary’s ham-handed efforts to convince everyone Trump doesn’t mean it and that everything is fine,” he told The Hill.

“Trump’s trade war, his cavalier willingness to shut government down and his broadsides against Fed independence are too much for investors to bear,” Zandi said. “Trump’s misplaced economic policies already had stock investors looking for the door, but given the political chaos he is creating they are now running through it.”

Republican lawmakers want Trump to ease off his criticism of the Fed.

Sen. Pat ToomeyPatrick (Pat) Joseph ToomeyNSA improperly collected US phone records in October, new documents show Overnight Defense: Pick for South Korean envoy splits with Trump on nuclear threat | McCain blasts move to suspend Korean military exercises | White House defends Trump salute of North Korean general WH backpedals on Trump's 'due process' remark on guns MORE (R-Pa.) on Sunday called Trump’s comments “unfortunate,” and he defended Powell, who was confirmed by the Senate in January in an 84-13 vote, one of the widest margins for a Trump nominee.

“Chairman Powell is not going to let politics interfere with his decisionmaking process. I happen to think that we owe him a debt of gratitude,” he said, praising the Fed chairman for putting monetary policy “on a path to normalcy.”

Former Senate Banking Committee Chairman Richard ShelbyRichard Craig ShelbyAlabama secretary of state announces Senate bid House approves 3 billion spending package This week: Congress set for clash on Trump's border request MORE (R-Ala.) on Saturday warned against ousting Powell.  

“I’d be very careful doing that,” he said. “The Federal Reserve is set up to be independent.”

Lawmakers are wary of Trump making another unexpected, high-profile personnel decision after he sped up the departure of outgoing Defense Secretary James MattisJames Norman MattisNew Defense chief: Our 'priorities remain unchanged' The Hill's 12:30 Report: Trump targets Iran with new sanctions Trump urged to quickly fill Pentagon post amid Iran tensions MORE to the end of the year, instead of the end of February as Mattis initially announced.

Powell on Wednesday made it a point to say pressure from Trump hasn’t had any effect on Fed policymaking. 

“Political considerations have played no role whatsoever in our discussion or decisions about monetary policy,” he told reporters after the Fed announced a quarter-point rate hike, the central bank’s fourth rate increase of the year. “We have the independence, which we think is essential to be able to do our jobs in a nonpolitical way.” 

“We at the Fed are absolutely committed to that mission, and nothing will deter us from doing what we think is the right thing to do,” he added.

Those remarks spurred Trump to privately discuss firing Powell, according to Bloomberg and CNN, although experts are mixed on whether he has the authority to dismiss a Fed chairman.

Matt Stoller, a fellow at the Open Markets Institute, tweeted on Saturday that Trump could fire Fed board members for holding bank stock in index funds under Section 10 of the Federal Reserve Act. 

Other finance experts have argued that the law empowers a president to remove a Fed chairman “for cause.”

Mnuchin tried to quash that speculation over the weekend by tweeting that Trump told him that while he disagrees with Fed policy he acknowledged he didn’t have the right to remove him. 

That reassurance failed to avert a stock-market rout on Monday, giving Democrats ammo in their fight over border wall funding, which has left some federal departments and agencies shuttered through Christmas. 

“It's Christmas Eve and President Trump is plunging the country into chaos,” Senate Democratic Leader Charles SchumerCharles (Chuck) Ellis SchumerTrump goes after Democrats over photo of drowned migrants Schumer displays photo of drowned migrants on Senate floor in appeal to Trump McConnell-backed Super PAC says nominating Roy Moore would be 'gift wrapping' seat to Dems MORE (N.Y.) and House Democratic Leader Nancy PelosiNancy PelosiSenate passes .5 billion border bill, setting up fight with House Pelosi: Congress will receive election security briefing in July Trump says he spoke to Pelosi, McConnell on border package MORE (Calif.) said in a joint statement. “The stock market is tanking and the president is waging a personal war on the Federal Reserve — after he just fired the Secretary of Defense.”