While President Trump has walked back his comments, here’s what would happen if he fired Federal Reserve chair Jerome Powell.
Transcript:
Caroline Woods: If President Trump were to fire Fed Chair Powell because he’s not doing what he wants him to do, what do you think the stock market fallout would look like if the independence of the Fed is in jeopardy?
Rebecca Walser: Yeah, I mean that is a problem. It is a sure, true problem. A lot of Americans have the gut perception that the Federal Reserve is a federal division of the federal government. It is not. It is a private corporation, but it is private. It was chartered by Congress. So it was a created entity by Congress. And the President does appoint the head and then obviously all the Fed presidents and all the Fed governors and all those things. So there is that sense of independence and autonomy and should that for any reason really, if he could somehow successfully fire Powell, I do think that would be very disruptive for the markets, because then you could have, on a whim, you know, it’s a 10-year term for a reason. It’s supposed to outlast the President. And if you started to really jeopardize that independence, that would be a problem for the markets, because then you have the executive agency that, of course, every president wants the stock market to go up under there. We can make the stock market go up and a lot of nefarious ways, constantly printing stimulus, constantly keeping the cost of capital way below what it should be naturally, organically. And so you have to have that independence and that needs to be maintained.
Caroline Woods: What would that disruption look like? How much would the market fall?
Rebecca Walser: I think that you’d see a pullback in the markets, but then you would also it would be depending on what was happening. Right? Because if you were replacing Powell with someone who was more ready to stimulate and cut interest rates and do back quantitative easing again, that would actually help capital markets because they would think, OK, we’re going to have low cost of capital. We’re going to be able to do research and development. We’re going to be able to expand our infrastructure into AI and all of these things that were on the fourth Industrial Revolution cup. So it would actually possibly in this case might be helpful because Powell is kind of being restrictive, whereas he’s been accommodative, but now he’s being restrictive. And so I think in this case, it might be helpful short term. But long term, the long term perspective of do we don’t have independent central bank policy is problematic.
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