Earlier this week, Wednesday to be exact, it was reported that a high ranking official in the Trump administration had confirmed that President Trump was about to fire Jerome Powell, the Chairman of the Federal Reserve. The news first came to light when it was reported earlier in the day that the President had read a letter to Republican lawmakers that informed Powell of his sacking – you just know it said “You’re Fired!” - and asked for their opinion of it. One of those Republicans posted on X that Powell’s demise was imminent.
Stock traders, an emotional bunch, started selling at the open – Oh my God! He’s really going to do it this time! – while bond traders didn’t wake up to the threat to their livelihood until later in the morning, pushing down short term rates and selling the long end, the yield curve steepening 7 basis points – 7! – in a matter of minutes.
The forex market seemed to be the last to notice the imminent threat to our way of life, selling dollars for Euros on the assumption that the fate of the mighty dollar depended on keeping….a political science major with a law degree in charge of the Federal Reserve.
When he was asked about it around 2 in the afternoon during a press briefing, the President backpedaled – TACOd one might say – but still managed to throw some shade Powell’s way:
“I don’t rule out anything, but I think it’s highly unlikely, unless he has to leave for fraud.”
Because Powell can only be fired for cause - which apparently doesn’t include creating a little housing price boom during COVID by buying several trillion dollars worth of mortgages or allowing inflation to get out of hand in 2022 - the President and his minions have taken to accusing the Fed chair of committing fraud during the renovation of two Fed office buildings.
The Fed’s headquarters, the Marriner S. Eccles building, named after a former Chairman no one remembers not a character from Moby Dick, and a building next door that didn’t warrant being named after some defunct economist, are under renovation to the tune of a cool $2.6 billion which is 27% higher than was estimated when it was announced in 2019. In other words, it’s like every other project run with the efficiency of government contracting, no fraud required.
I’m sure the cost overruns didn’t have anything to do with the three Trump appointees on the Commission of Fine Arts that pushed for using more “white Georgia marble”, I guess to make it look more like Stone Mountain. We should thank our lucky stars that Trump, bless his heart, wasn’t personally involved or the gilt bill alone would have required the Fed to turn the money printer up to 11.
Considering that Powell oversaw a 37% rise in the CPI during that time, we probably ought to be thanking the man for being so parsimonious. I’m going to go out on a limb here and say that no fraud has been committed, at least not in the building renovations. The real scandal is that the Fed apparently needs 1.1 million square feet of office space. That’s 2750 square feet per pointy headed PhD economist in case you’re wondering.
President Trump has been complaining about Powell almost from the moment he appointed him, a momentary lapse of judgment that, according to him, has held the economy back from the new gilded age that is only a matter of time, more tariffs (for some reason I keep hearing cowbells when I say that in my head) and a whopper of a cut in the Fed funds rate.
Fed policy today is mostly a matter of talking the market into believing the Fed has a clue what it’s doing, a job made more difficult by the fact that they don’t. The dot plot they put out four times a year is useful only in determining what isn’t going to happen. The job has been further complicated this year by President Trump’s insistence that the US is the victim of a nefarious plot by the rest of the world to sell us stuff we want at prices we are willing to pay. He also apparently believes he’s our daddy, knows what’s good for us and aims to give it to us good and hard.
There is currently a scrum of limber, pliable folks falling all over themselves to justify lowering interest rates in service to President Trump’s agenda if they are nominated to succeed Powell. Kevin Warsh, who spent his previous time on the Fed being wrong about QE, has now found that old loose money religion and wants the job so bad he’s all but promising to curtsy to Scott Bessent.
Kevin Hasset claims to not want the job and we should hope he doesn’t since his last prediction – Dow 36,000 – was a full 22 years early which gives a whole new meaning to the phrase forward guidance.
Lastly, Chris Waller also wants the job and is so anxious to start that he announced this week that he’d be voting for a rate cut at the Fed’s July meeting. Subtlety, a necessary trait for a Fed chair these days, is not his strong suit.
Firing Jerome Powell isn’t going to make tariffs a better policy. The next Fed chair will be restrained by the market just as Powell is. He can cut short term rates but he can’t control long term rates. If he convinces the other members of the FOMC to enact policies that are seen as inflationary, long term rates are going to go up and there isn’t a damn thing he’ll be able to do to stop it.
The idea that a new Fed chair and the rest of the Trump administration can outsmart the market is laughable and not worth worrying about. I’m going out for tacos.
