By removing Federal Reserve Chairman Powell before his term is up in May, President Trump would raise, not lower, interest rates.

The Federal Reserve is a quasi-private entity and was designed by Congress to be insulated from political interference.

The 12 regional federal reserve banks are owned by their member banks. The presidents are chosen by their Boards of Directors subject to the approval of the seven-member Board of Governors in Washington. Those seven, including its chair, are nominated by the President and confirmed by the Senate.

It’s a system designed to frustrate presidents who naturally want lower interest rates.

Subject to jawboning from the White House, Congress and influential business leaders and analysts, the Fed’s Open Market Committee determines the Fed’s interest rate policy and holdings of Treasury securities.

It prints money to purchase those securities and thereby determines the supply of money in circulation and influences private market interest rates and inflation.

Voting members of the FMOC include the seven governors, the President of the New York Fed and four regional bank presidents, serving on a rotating basis.

Chairman Powell can only be removed for cause—malfeasance, neglect of duty or gross misconduct—hence the bruhaha about the costly renovations and expansion of the Fed’s headquarters.

Fixing and expanding historic buildings routinely costs more than expected, as problems arise in the walls, plumbing and soil. Harping about those is a losing proposition for Trump.

Being so public about his frustrations with Powell is self-defeating, too.

As with the Supreme Court, Senators closely scrutinize board nominees. During Trump’s first term, the Senate declined to approve Judy Shelton.

Naturally, Trump wants lower interest rates to reduce the burden of servicing the national debt in the federal budget and lower business and consumer borrowing costs.

He could nominate National Economic Council Chairman Kevin Hassett or former Fed Governor Kevin Warsh, who recently have expressed similar sympathies.

Calling Powell "Too Late" and drawing contenders for the top job into his campaign to oust Powell only increases the scrutiny they should receive if nominated.

Both Hasset and Warsh have changed their public positions to align with Trump, raising questions about their judgement and fitness for one of the most powerful positions in Washington and the financial world.

Their commitment to Fed independence and policy decisions based on conditions in the economy—as opposed to presidential whims—now will be subject to the highest scrutiny.

So far, Trump has been able to steamroll Congress. For example, the tax breaks for tip and overtime income can’t be justified on economic or equity grounds and shouldn’t have been approved.

However, choosing a Fed Chair is a considerably more important decision.

The Senate could push back on the nomination of Hasset, Warsh or anyone else who joined the "purge Powell" campaign.

The Fed Chair isn’t a dictator.

The position enjoys great influence, but FMOC decisions are generally taken by consensus—dissenting votes are infrequent—and subject to lively debate through the public speaking of FMOC members and in their private deliberations.

If most of the FMOC perceives the Chair to be controlled by the Oval Office, it could eschew tradition by choosing a governor other than the Chair of the Federal Reserve Board to head the Committee.

The FMOC could even choose Powell if he stays on the board after his term as Chair is up.

Already, the size of federal deficits and growing burden of interest payments in the federal budget are weighing on the confidence of investors about the safety of longer-term U.S. debt.

As the U.S. government borrows in dollars, the Fed can print money to buy Treasuries to avert a default. But so monetarizing the debt would drive up inflation and diminish the real value of Treasury securities.

Hence, compromising the independence of the Fed to resist such schemes undermines confidence among investors about the durability U.S. sovereign debt as a store of value and raises the interest rates they demand to hold it.

That’s the exact opposite of what Trump wants—attacking Powell raises the interest burden imposed by the national debt and business and consumer borrowing costs.

All this undermines international confidence in the dollar as the reserve currency and could inspire foreign central banks to create an alternative, such as a stablecoin backed by a basket of major currencies.

By removing Powell from office early or picking a hack to be his successor, Trump would further compromise the integrity of the Fed, handicap the American economy and tarnish his legacy.

_______________
Peter Morici is an economist and emeritus business professor at the University of Maryland, and a national columnist.