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.
