What could happen if Trump fires Jerome Powell

The President has threatened to remove the Fed Chair several times.

Transcript

00:00It appears that the president cannot fire Chair Powell, but, you know, this administration has

00:05found ways to circumvent court decisions in the past. One never knows. Certainly, I think,

00:10like most market participants, I would hope that that is not the case because an independent Fed

00:14is so critically important. The pressure campaign isn't helpful. But look, if the president were

00:22to remove Powell, or as you say, let's broaden it out and say, what if the Fed's independence

00:26is called into question, I think that has the potential to be very disruptive, particularly

00:30in fixed income markets. And the reason is that historically, central banks that aren't

00:34independent accommodate and tolerate higher inflation. Doing what is politically expedient

00:40usually means stimulating growth. And stimulating growth can be inappropriate depending on the

00:45circumstances of the economy. And so I would expect in that world that bond market investors

00:49would have to put additional inflation premium into bond markets, and that would likely push

00:54longer dated yields up. It's sort of contrary to the administration's objectives of lowering

00:59yields, right? I think that if they were able to remove Chair Powell or compromise the Fed's

01:04independence, it might be counterproductive from their point of view. We talked about mortgage rates,

01:09right? Mortgage rates are indexed to longer dated bond yields. And if bond yields go up, so too do

01:14mortgage rates. And if you reduce the Fed's independence and inflation expectations go up, that's

01:19exactly what happens.