Throughout the Republican debates, Newt Gingrich has curried favor with the GOP base by promising, if elected president, to fire Federal Reserve chairman Ben Bernanke. During Saturday night’s debate in Iowa, for instance, Gingrich told Rep. Ron Paul — the leading Republican Fed critic — that “…I happen to be with you on auditing the Fed and on fund– and frankly on firing Bernanke.”
The problem with this applause line (which Rick Perry also has used) is that the president does not have the power to fire the Fed chair. If Gingrich were elected president, he would find getting rid of Bernanke to be a difficult task.
The Fed is structured to remove the influence of politics from monetary policy. Accordingly, the president nominates candidates for the Board of Governors, but, once approved by the Senate, the governors are granted 14-year terms that can’t be cut short by the executive branch. The chairman of the Board of Governors, also nominated by the president, is limited to four-year terms, but after he’s confirmed the president has no authority to remove him unilaterally. Furthermore, the chairman is also a member of the Board of Governors, so even if President Gingrich were to replace Bernanke when Bernanke’s term expires in 2014, Bernanke could choose to fill out the remainder of his 14-year term as a governor.
Traditionally, Fed chairs and presidents act in concert and without partisanship, and it’s believable that Bernanke would simply step down if Gingrich were elected with a mandate to fire him. But if Gingrich wanted Bernanke gone and Bernanke refused, Gingrich would be faced with two options. The first would be to initiate legal action against Bernanke. The Federal Reserve Act, in section 10.2, stipulates that a governor can only be “removed for cause,” or for some malfeasance. Removing Bernanke for cause, however, would involve proving wrongdoing of some kind, and the process would ultimately be decided by employment lawyers and the legal system, not by Gingrich alone. A spokesman for the Federal Reserve declined to specify which causes might prove grounds for removing a Fed chair, but stated that the “for cause” provision of the Federal Reserve Act is the only means by which a president could end a Fed governor’s term prematurely.
The other option available to Gingrich would be, simply, to amend the Federal Reserve Act to allow the president to fire the Fed chairman at his discretion. Indeed, Gingrich appears to have realized that this would be the best option available. Just yesterday, he hinted at such a strategy, telling a New Hampshire town hall that “[i]f he has not resigned by the time I am sworn in, I will ask Congress to fire Ben Bernanke.” Of course, moving legislation through Congress is vastly more complicated than simply firing an underling.
That it’s not easy to get rid of a Fed chairman is evidenced by the fact that two different presidents tried, or at least considered, removing one chairman — and failed. According to Allan Meltzer, a professor of economics at Carnegie Mellon and the author of an authoritative history of the Federal Reserve, James Tobin, a member of John F. Kennedy’s first Council of Economic Advisers, advocated firing then-Fed chairman William McChesney Martin while on the campaign trail. After the election, however, Martin not only refused to step down, he also eventually was reappointed for another term by Kennedy. In 1969, President Nixon also wanted to remove Martin, and offered him the position of Treasury Secretary. Martin declined, and filled out his term a year afterward.