A big financial showdown brewing:
Trump vs Powell
Is firing Fed Chair Powell back on the table?
Yesterday, President Trump said, "I'll demand that interest rates drop immediately."
Powell remains "cautious about future cuts." And there's the problem. Trouble could be brewing and Trump has repeatedly floated the idea of firing Chair Powell.
Trump has called...
- Fed policymakers "boneheads" and
- Compared Powell to a golfer who can’t putt
He even said of Powell’s job, “You show up to the office once a month, and you say, ‘Let’s flip a coin,’ and everybody talks about you like you’re a god.”
If Trump tries to fire Powell, what happens?
A President has never attempted to fire a Fed Chair and cannot easily fire a Board Governor without "cause."
If that unlikely scenario were pursued, we could see:
- Legal battles
- Market uncertainty
- A "shadow" Fed Chair scenario
- Two competing monetary policy voices
Powell's term? Runs until 2026.
Powell Is Clear About Willingly Resigning
When Powell was asked about whether he'd resign if President Trump asked him to in November, Powell's response wasn't just "No" - it was delivered ice cold, adding... "Not permitted under the law." He's clearly ready for a fight to protect Fed independence.
Meanwhile, tensions over Fed policy are mounting. While Trump "demands" interest rate cuts, Chair Powell has said:
"I think we're in a good place... We're going to be cautious about further cuts." |
Markets reacted to Chair Powell Being "cautious about further cuts"...
Rate cut expectations have HALVED since August 2024.
- August 2024: 10 rate cuts expected
- Today: 1 cut expected (plus 4 existing cuts)
Meanwhile, Inflation is rising
Inflation rose +2.9% year-over-year most recently, a 14bp acceleration versus November.
Hedgeye vs. Wall Street: We see inflation rising
Our estimates have inflation continuing to rise to north of 3% in 2025. Wall Street sees inflation continuing to fall toward 2%.
If inflation picks up, will Powell be at odds with Trump?
Quick answer: Yes.
But when it comes to what he can do about it, Trump's options are limited. Powell can only be removed for:
- Inefficiency
- Neglect of duty
- Malfeasance
Policy disagreements? Not enough. The process would also require a special counsel before the Senate.
What else can Trump do?
It's legally unclear if the President can demote the Fed Chair. He could also...
- Wait until Powell's term ends in 2026
- Try to influence Fed policy through public pressure
- Consider appointing a "shadow" Fed Chair to sideline Powell and undermine official Fed policy decisions
How This Impacts Your Portfolio
The Hedgeye view is that inflation is rising north of 3% in 2025. The Hedgeye investing process is designed to help you make money no matter what happens between Powell and Trump. Join us for a #BetterWay to invest.
Want to learn more?
You can watch former hedge fund manager and Hedgeye CEO Keith McCullough analyze markets and provide actionable ideas every day on The Macro Show. It's what smart investors watch to win.