How Will Trump Firing Federal Reserve Governor Lisa Cook Affect Markets? | What's Moving Your Money - video Dailymotion

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On "What's Moving Your Money with Spencer Hakimian," Spencer responds to President Trump's call to fire Fed Governor Lisa Cook, and what this shocking act means for markets.  Read the full story on Forbes:   Subscribe to FORBES: https://www.youtube.com/user/Forbes?sub_confirmation=1  0:00 - Introduction: Trump Fires a Fed Governor 0:42 - The Fed's Dilemma: Protect Independence or Avoid a Legal Battle? 1:44 - An Unprecedented Move in 110 Years 2:43 - The Irony: Trump's Actions Are Causing Rates to Rise 3:37 - Market Reaction: The Dollar Plunges & Gold Spikes 5:02 - Market Reaction: Treasuries Fall & Stocks are Confused 6:30 - Setting a Dangerous Precedent (The 'Gavin Newsom Test') 7:51 - The High Price of Losing Fed Independence  Fuel your success with Forbes. Gain unlimited access to premium journalism, including breaking news, groundbreaking in-depth reported stories, daily digests and more. Plus, members get a front-row seat at members-only events with leading thinkers and doers, access to premium video that can help you get ahead, an ad-light experience, early access to select products including NFT drops and more:  https://account.forbes.com/membership/?utm_source=youtube&utm_medium=display&utm_campaign=growth_non-sub_paid_subscribe_ytdescript  Stay Connected Forbes newsletters: https://newsletters.editorial.forbes.com Forbes on Facebook: http://fb.com/forbes Forbes Video on Twitter: http://www.twitter.com/forbes Forbes Video on Instagram: http://instagram.com/forbes More From Forbes:  http://forbes.com  Forbes covers the intersection of entrepreneurship, wealth, technology, business and lifestyle with a focus on people and success.

Transcript

00:00Hey everyone, it's Spencer Akimian and welcome back to another episode of What's Moving Your

00:05Money. On today's episode, we're going to be talking about President Trump's decision to fire

00:11Fed Governor Lisa Cook, Lisa Cook's subsequent refusal to step down, what this all means for

00:17markets, and most importantly, the precedent that this sets in the United States going forward,

00:23and how this will continuously impact markets as we progress throughout our lives. So stay

00:29tuned and I hope you guys enjoy. So last night, Trump put out a true social post that he was

00:40firing Lisa Cook immediately, and the reason that he had given was that she had supposedly

00:45partook in mortgage fraud. Now these claims are unsubstantiated, but nonetheless, the president

00:51used them as reason to relieve her of her duties effective immediately. This puts the Fed in an

00:58interesting spot because if the Fed continues to let her stay on as a member of the Fed, and if in

01:06the appeals process she loses and it is proven that Trump is allowed to fire her, then this would give

01:13Trump legal capacity to potentially fire everyone else on the Fed for breach of duty. So Powell and

01:20co are in a very complicated situation here. On one end, do they protect their monetary independence?

01:26Do they protect what is an obvious attack against one of their own? Or do they let her go so as to

01:33not open a can of potential legal worms? It is a very good question. And to be honest, it remains to

01:40be seen what the Fed will do. They have not spoken publicly yet as to what their plan of action is,

01:46but I'm going to be looking forward to that very closely. Another thing that's really worth noting is

01:51this is unprecedented. This is the first time in 110 years that a president has fired a member of

01:58the Federal Reserve. Now this comes as Trump has relentlessly attacked the Federal Reserve for what

02:03he believes is incorrect monetary policy, and he has relentlessly attacked them for not lowering rates

02:09fast enough. The direction here is quite obvious. He wants lower rates, whether it is for the better of

02:15the country, for the worse of the country. He wants during the remaining three and a quarter years of

02:19his term as president, he wants lower Fed funds rate. Ironically, what he may not be realizing

02:25is all this jawboning is causing long end yields to rise. It is not as if long end yields have fallen.

02:33Go try and get a mortgage right now. You're going to get quoted in the high six or the low sevens,

02:38depending on your credit score. It is not just the Fed funds that impacts the economy.

02:43As a matter of fact, the Fed funds is a rather small overall interest rate point relative to the

02:50rest of the entire borrowing spectrum. So it is not as if he can just jawbone the Fed into lowering

02:56rates and that will transmit into lowering rates across the curve. In fact, it might even price in

03:01some higher inflation premium and it might cause rates to rise, ironically. So it is not a guarantee

03:07that this aggressive plan of action will even work out for what Trump is attempting to achieve.

03:13So it is curious, but we have to monitor it nonetheless because it moves markets. Now let's

03:18get into what impact this decision had on asset markets last night because the reaction was

03:25immediate and it was substantial across the asset universe. So the most immediate reaction was that

03:32the dollar plunged on the news. And this is fairly obvious. As we lose monetary credibility as a country,

03:39as we have political interference in the monetary process, we get closer and closer to losing reserve

03:47status. And if we are on a path towards losing reserve status, remember, this is not an on-off switch.

03:54This is a continuum that happens over a very long period of time. But it clearly looks like we're on

04:00that path towards losing this status relative to other countries around the world. If this status is lost,

04:07the value of the dollar is lower. There is not enough, there's no longer as much need to hold

04:13on to dollars as there previously was. And as that happens, the dollar falls. And as I keep covering in

04:19prior episodes, this is inflationary. This is actually material to your life. When the dollar falls,

04:25your imports become more expensive. When the dollar falls, your vacation overseas becomes more expensive.

04:32When the dollar falls, your purchase of commodities becomes more expensive. All of the above becomes

04:39more expensive when you have a falling dollar. The next asset that immediately reacted to the news

04:45that Lisa Cook was getting fired was gold. And this is just the other end of that same exact puzzle.

04:51Dollar falls, commodities rise, right? Dollar falls, gold rises. Gold is a, in theory,

04:58finite asset. And dollars are obviously an infinite asset. And as the dollar weakens,

05:04or as more dollars are in circulation, gold improves, gold goes up in value. Remember,

05:09it's not that gold is getting better. It's that the dollar is getting worse. So I always consider

05:14these two sides of the same trade whenever people ask me. The next thing, which was ironic, really ironic,

05:20was that treasuries fell. Long-end treasury yields rose, right? The 10-year, the 30-year, all of those

05:27rates got more expensive last night on this news. And again, as we lose monetary credibility,

05:34the market will begin to assume we will look through inflation, and we will continue to leave rates

05:41lower to pump nominal growth. And as that happens, right, you have to get a higher yield.

05:48If you want to borrow to someone, because you have to factor in the risk that you are not going to get

05:54paid in real terms at this point. So you can't just look at nominal returns, you have to look at real

05:58returns, which is why yields are rising. And finally, equities were roughly flat. Equities are flat because,

06:06yes, in the long run, this is bad for asset prices. This is bad for a country's stock market and for its

06:12financial market. But in the short run, if you are going to artificially lower monetary policy,

06:19if you are going to artificially jawbone the Fed into expanding its balance sheet yet again,

06:24then it's nirvana for stocks. It's 2020, it's 2021, it's 2009, it's all over again, right? The side

06:32effects come next, but the good stuff is going to come first. So stocks may be pricing in a little

06:38bit of that. And again, markets are not ethics machines. Markets are pricing mechanisms. So as

06:44these things happen, we'll just have to pay more attention to it. That's all it is. And I just want

06:48to end this episode talking about the potential moral hazard of these actions. It's not just this one

06:55action. It is the compilation of all the actions of what Trump has done in regards to monetary policy

07:02independence in a few months. In politics, I always say, don't think of a decision in the present day.

07:08Think of a decision based on if the party you dislike makes that decision in the opposite manner.

07:15Would you still support it? Therefore, that's how you can get to having an honest opinion. Is this a

07:20good idea? Imagine if Gavin Newsom wins in 2028. And in 2029, he comes around and he fires all the

07:27right leaning members of the Federal Reserve and replaces them with left leaning economists. How

07:33would that make people respond? For independents like me, for nonpartisans like me, we'd be angry

07:38both times, of course, right? But if you are cheering on this decision, because in the short term,

07:44you believe it is good, or your team, quote unquote, is winning. Think about how often

07:49control changes in Washington every two years, every four years, you name it.

07:53Power changes hands. And once you set a precedent, it is very hard to undo that. Once you set the

08:01president that the president is allowed to pick who he wants to serve on the central bank during his

08:08term. Well, you've made that a permanent fixture of politics now. And we are all going to pay a price

08:14if we do not have monetary policy independence, not just you, not just your company, the whole

08:21country, the whole world will pay for an America that does not have central bank independence. This

08:26is a bad idea. And history will ultimately show that it was a bad idea. But nonetheless,

08:32I welcome all your questions and comments. And I'm looking forward to the next time.

How Will Trump Firing Federal Reserve Governor Lisa Cook Affect Markets? | What's Moving Your Money

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