Firing Fed Chair Powell Could Spark Market Confusion

President Donald Trump denied he is seeking to remove Federal Reserve Chair Jerome Powell, after raising the idea in a closed-door meeting with congressional Republicans that leaked to the media. “No, we’re not planning on doing anything,” Trump told reporters on Wednesday. He later added, “I don’t rule out anything, but I think it’s highly unlikely, unless he has to leave for fraud.” A White House official, speaking on the condition of anonymity earlier Wednesday, said they expected Trump to soon move against the Fed chief after his meeting with members of Congress visiting the White House to discuss cryptocurrency legislation. Some lawmakers also left that Tuesday evening meeting with that impression, and Trump acknowledged that he had polled the participants about dismissing Powell. Bloomberg's Mike McKee reports. The president’s remarks in the Oval Office left open the possibility of ousting Powell for cause. Trump and his allies have lambasted the Fed chair over the central bank’s decision to hold interest rates steady and the cost of the central bank’s renovations of its Washington headquarters. The events marked the latest turn in the long-running saga between Trump and Powell. The president has repeatedly floated the prospect of firing the Fed leader over the bank’s monetary policy, but has stopped short. Many analysts have warned that if Trump were to follow through on ousting Powell it would roil financial markets and lead to a consequential legal showdown over the independence of the central bank. But the reaction on Wednesday was muted. On the early news that the president would likely make the move, stocks, the dollar and short-dated yields all declined, but showed no drastic repricing. “The market did not react that badly before Trump disavowed the reports,” Derek Tang, an economist at LH Meyer/Monetary Policy Analytics in Washington, wrote in a note to clients. “Were it a trial balloon to test the waters, it was a success and might embolden Trump. Now the window of acceptability has shifted, for the worse.” If Fed independence did get “broken,” Thomas Thornton, founder of the hedge fund Telemetry, said that would inject risk into the bond market. “with this potential of a Fed chair being ousted combined with the continued risk of high deficits and out of control US debt levels, the risk of the long-end rates spiking is increasing.” Bank Chiefs As confusion swirled over Trump’s plans with regard to Powell Wednesday morning, chieftains of two of the biggest American banks emphasized the importance of the Fed’s autonomy from the political sphere. “Fed independence, particularly on monetary policy, is super important,” Goldman Sachs Group Inc. Chief Executive David Solomon said on CNBC. “Stability in the Fed seat I think is important.” Brian Moynihan, CEO of Bank of America Corp., said, “In a year we’ll have a new Fed chair because that’s the right of the president.” But right now “an independent Fed is critical” to the nation, he said on CNBC. Trump has blasted Powell for what he says is the bank’s sluggishness on interest-rate cuts. The president has said he wants the bank to slash its benchmark rate, currently in a range of 4.25% to 4.5, by as much as 3 percentage points to lower federal borrowing costs.  he president on Wednesday again attacked Powell as a “knucklehead” who has been “too late” to lower rates. Trump initially nominated Powell to lead the Fed in 2017 and former President Joe Biden appointed him to another term in 2022, which expires next May.  “I was surprised he was appointed. I was surprised, frankly, that Biden put him in and extended him, but they did,” the president said. Two individuals familiar with the meeting Tuesday night said Trump had displayed a letter authorizing Powell’s firing, but Trump on Wednesday denied that he drafted and displayed such a document. The president did say of the lawmakers in the room that “almost every one of them” supported the idea of removing the central bank chief. -------- Watch Bloomberg Radio LIVE on YouTube Weekdays 7am-6pm ET WATCH HERE: http://bit.ly/3vTiACF Follow us on X:   / bloombergradio   Subscribe to our Podcasts: Bloomberg Daybreak: http://bit.ly/3DWYoAN Bloomberg Surveillance: http://bit.ly/3OPtReI Bloomberg Intelligence: http://bit.ly/3YrBfOi Balance of Power: http://bit.ly/3OO8eLC Bloomberg Businessweek: http://bit.ly/3IPl60i Listen on Apple CarPlay and Android Auto with the Bloomberg Business app: Apple CarPlay: https://apple.co/486mghI Android Auto: https://bit.ly/49benZy Visit our YouTube channels: Bloomberg Podcasts:    / bloombergpodcasts   Bloomberg Television:    / @markets   Bloomberg Originals:    / bloomberg   Quicktake:    / @bloombergquicktake