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Markets are not on board with Donald Trump’s crusade against Fed chair Jerome Powell.
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Stocks tumbled on reports this week that Trump was ready to fire Powell.
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Bank CEOs and analysts weighed in on the issue and raised several concerns.
Markets do not want the president to mess around with the Fed.
This was made clear in April when Donald Trump first threatened to fire Chairman Jerome Powell, and again on Wednesday as investors reacted to reports that Trump was getting ready to oust Powell.
After a brief spasm of volatility in Wednesday’s trading session, markets recovered after Trump said he wasn’t actually about to fire Powell.
It’s unclear how, when, or if Trump will try to remove the Fed chief from his position, or if such a move would even work to lower interest rates as Trump has said he wants. Yet, Wall Street is certain of one thing: It would be bad for markets.
Here’s what five top minds on Wall Street had to say about the Trump-Powell feud.
Brian Moynihan, Bank of America CEO
It’s critical for the economy for the Fed to remain independent from politics, Bank of America’s Brian Moynihan said.
“The Fed is an independent agency, and they’re meant to be outside the purview of the executive and Congress,” he said, speaking to Bloomberg on Wednesday.
“Because if we drop rates too far, inflation may kick up, and then you have to raise them back quickly,” he added, when speaking about the issues a new Fed Chair would need to consider.
Other administration officials have floated the idea of a shadow Fed Chair, an incoming central bank chief announced before the end of Powell’s term, who could indicate to markets what to expect after Powell is gone.
Trump, meanwhile, was reportedly considering announcing a new Fed Chair as soon as this fall, an unprecedented move that could be read as trying to undermine Powell’s influence over markets.
Jamie Dimon, JPMorganChase CEO
The JPMorgan boss also said it was critical for the central bank to maintain its independence on Tuesday, before reports of Trump speaking to lawmakers began to circulate.
“The president said he’s not going to try to remove Jay Powell,” Dimon said after JPMorgan reported its earnings for the quarter. “The independence of the Fed is absolutely critical, and not just for the current Fed chairman, who I respect, but for the next Fed chairman.”
“Playing around with the Fed can often have adverse consequences, absolutely opposite of what you might be hoping for,” Dimon later added, referring to the idea that hotter inflation could call for higher interest rates in the future.
Roger Altman, Evercore founder and former Deputy Treasury Secretary
It’s doubtful whether Trump was truly planning on firing Powell in the first place. But, if the president were seriously thinking about it, that would be “among the worst ideas,” Altman said, speaking to CNBC on Wednesday.
“It’s a dreadful idea. And President Trump would severely regret that,” he said.
Historically, economies with a politically controlled central bank have struggled when compared to economies where the central bank remains independent, Altman said. He pointed to the “stark” difference between nations with independent policymakers and nations like Turkey and Argentina.
It’s also unclear whether Trump could succeed in removing Powell from the Fed. Powell could be unwilling to leave if Trump were to fire him, meaning the issue could escalate to the courts, Altman speculated.
The Supreme Court this year already said that it was not legal for the president to fire the head of the central bank.
“I think it would be a failed effort to oust him, and I think President Trump is too smart to go down that road. He probably likes trolling Chairman Powell, but I don’t think he really plans to do this,” Altman said.
David Solomon, Goldman Sachs CEO
Goldman Sachs CEO David Solomon also underscored the importance of the Fed remaining independent from politics.
“With respect to monetary policy, I think central bank independence, Fed independence, is very important, and it’s something we should fight to preserve,” Solomon said, speaking to CNBC on Wednesday.
Solomon added that he believed there was a “reasonable” chance the Fed would cut interest rates once or twice this year, though he wasn’t certain. Inflation looks to be on the right track, which should give the central bank room to cut rates, but the impact of tariffs still needs to be seen, he said.
Deutsche Bank
If Trump were to move forward with firing Powell, the volatility in markets could be far greater than what investors saw on Wednesday, when reports of Trump speaking to lawmakers originally surfaced, Jim Reid, an analyst at Deutsche Bank, wrote on Thursday.
US stocks sold off sharply as investors digested the news, but reversed course after Trump downplayed the likelihood he would fire Powell. Treasury yields, a reflection of interest rate expectations in the economy, also surged, while the US dollar weakened against other currencies, like the euro.
“If you wanted to make a very crude calculation about what the immediate impact would be if he did fire Powell, you could multiply these numbers by four,” analysts said, speculating the 10-year Treasury yield could rise as much as 20 basis points, while the 30-year yield could rise as much as 45 basis points. The US dollar could also fall nearly 6% against the euro, the bank estimated.
Trump firing Powell is also unlikely to lead to lower rates, as the Fed needs to come to a consensus before changing the set interest rate level, economists wrote in a separate note on Wednesday. The event could also raise concerns about the Fed’s credibility, which could create “considerable risks to price stability,” they added.
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