April 21, 2025 • 18 mins
President Trump’s attacks on Federal Reserve Chair Jerome Powell just keep coming.
Today on the Big Take, Bloomberg’s Michael McKee and Saleha Mohsin join Sarah Holder and David Gura to ask: Can the president actually fire Powell? And what impact could his ongoing threats have on the US dollar and global financial markets?
Read more: Markets Are Discovering the Real Trump Trade Is ‘Sell America’
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Episode Transcript
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Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:10):
President Trump has a long standing feud with one man
who's central to the US financial system, FET Reserve Chair
Jerome Powell, and at the White House on Thursday, the
President laid down one of his sharpest attacks on Powell. Yet, Powell,
you said that the germination of Rome Powell would not
come fast enough.
Speaker 1 (00:27):
He says he didn't.
Speaker 3 (00:29):
Ask him to.
Speaker 4 (00:30):
Oh he'll live.
Speaker 2 (00:31):
If I asked him to, he'll be out of there.
Speaker 3 (00:32):
But I don't think he's I don't think he's I
don't think he's doing the job.
Speaker 2 (00:38):
He's too late, always too late, a.
Speaker 1 (00:40):
Little slow, and I'm not happy with him.
Speaker 2 (00:44):
Trump nominated Powell to the top job at the FED
in his first term, but the two have had a
rocky relationship ever since. Just days after Trump was re
elected in November, Powell told a reporter he would not
resign if Trump asked, if he asked you to leave,
would you go?
Speaker 3 (01:00):
No?
Speaker 2 (01:02):
Can you follow up on do you think that legally
you're not required to leave? No? But Trump's latest threats
to Powell's job on social media and in front of
microphones and cameras in the Oval office have set off
new alarm bells. They've also introduced some questions, can the
President actually fire the FED chair? What would that do
(01:22):
to financial market seeking stability? And if he follows through,
what would happen next.
Speaker 3 (01:32):
I'm David Gera and I'm Sarah Holder. This is the
Big Take from Bloomberg News Today.
Speaker 2 (01:37):
On the show Donald Trump Versus Jerome Powell, Michael McKee,
Bloomberg's International economics and policy correspondent, joins me to unpack
Trump's threats and whether the President actually has the legal
authority to fire his own FED chair.
Speaker 3 (01:50):
And I talked to Seliah Mosen, Bloomberg senior Washington correspondent
and host of The Big Take DC podcast about what
this fight could meet for the value of the dollar
and the status of US treasuries as a safe haven
in global markets.
Speaker 2 (02:11):
Mike, you and I are speaking on Monday morning, and
already today, President Trump has called Federalserve Church Rome Powell
a major loser in a post on truth Social I
think it's worth noting that Powell was President Trump's pick
to run the FED back in twenty seventeen. How would
you characterize their relationship today?
Speaker 1 (02:29):
Oh, I'd say there's probably very little relationship between the
two of them. Now, Powell and Scott Bessen's, the Treasury Secretary,
meet every week and both of them have described the
meetings as cordial and friendly and businesslike. But I don't
think that the President has spoken to Powell since the
day he nominated him, and it doesn't look like they're
(02:51):
going to be speaking anytime soon.
Speaker 2 (02:52):
Does the President have specific grievances that he's upset with j? Powell?
Speaker 1 (02:56):
For, well, it's all about lowering interest rates. He began
this latest round by noting that the European Central Bank
was going to be cutting rates last week, which they did,
And why isn't the FED doing that? He asked, And
he suggested that the FED is going to be late
if the economy slows down, not mentioning the fact that
Trump would be the reason the economy slows down, and
(03:17):
so he's trying to put pressure on, perhaps create a
scapegoat for whatever happens between now and the end of
the chairman's term.
Speaker 2 (03:27):
Mike, you've covered four Fed chares, Greenspan, Bernank, Yell, and
now Powell, and I wonder how unusual it is to
have the FED chair and the President butting heads like this.
By like this, I mean so publicly.
Speaker 1 (03:39):
There has always been criticism of the FED up on
Capitol Hill, but Pole has worked very hard to win
friends and influence people up on the Hill. He spends
a lot of time up there talking to members, which
is one reason he doesn't seem to be nervous about
what the President is talking about, because he says, I
have a lot of support up there. But presidents generally
stay away from the FED. This began really under Bill
(04:02):
Clinton when Bob Rubin was Treasury Secretary and head of
the National Economic Council, and he suggested that the best
thing for the president to do is not talk about
the FED. And it's been honored by every president except
for Donald Trump. Since we're going.
Speaker 2 (04:18):
To talk about the impact this is having on the
markets in a minute, but I'm curious what you think
the impact is on the FED itself, on the institution,
having the President talking about it and the chairman in
the way that he is.
Speaker 3 (04:29):
Well.
Speaker 1 (04:29):
I've talked to a number of FED officials and they
call it an astraction. It's not something that's going to
interfere with what they're doing, but because they're going to
be asked about it regularly, it is kind of something
that gets in the way a little bit. But remember
what their decision is. They can hold or they can
raise their lower rates, and beyond that, there isn't a
(04:49):
whole lot that they can do.
Speaker 2 (04:51):
So there's the innuendo. There's President Trump calling J. Powell
a loser. There's him raising this kind of specious allegation
that he cut rates to help present and byen Win
or to try to help Vice President Harris Win. Putting
that all aside, there's also this argument that the president's
making that he has the right or the ability to
remove J. Powell as FED chair. He said, you were
(05:11):
talking to experts. I wonder what they say about that
argument that the president's making that he has the latitude
and ability to do that.
Speaker 1 (05:17):
It's been controversial because it's something that's never been tried
and never been litigated in.
Speaker 2 (05:22):
A one d eleven year history of the event.
Speaker 1 (05:24):
Right, in the past, presidents have complained about FED chairs.
Speaker 2 (05:29):
George H. W.
Speaker 1 (05:30):
Bush blamed Alan Greenspan for losing him the nineteen ninety
two election, but they haven't tried to do this. In
the Federal Reserve Act, it says that the president can
only fire a Federal Reserve governor for cause. Now, what
is for cause mean? Historically it's meant malfeasance, in competence,
committing a crime, or being unable to do the job
(05:52):
physically or mentally. Nobody has ever tested that. It is
now being tested by the President in cases involving the
National Labor Relations Board and the Merit Systems Protection Board.
The main case is called Wilcox versus Trump. It's now
before the Supreme Court, and they too have four cause
clauses in their founding documents, and so if the court
(06:15):
were to rule that they could be fired, then it
might open the door to fire Powell. There's a feeling
that the FED is structured differently. When Congress created the FED,
they created it in a number of different ways to
keep political influence out of it. Fourteen year staggered terms
and that sort of thing. So it isn't clear even
(06:36):
if the President wins the right to fire these other people,
that they can fire J. Powell. I think the only
thing we can say is that it would also end
up into the Supreme Court.
Speaker 2 (06:45):
How has all of this played out in the market
so far, this uncertainty.
Speaker 1 (06:49):
Well, right now the market is trying to process so
much that it's a little hard to disentangle J. Powell
from tariffs and things like that. But it does appear
that the markets have reacted to the latest stories about
the possibility of firing Powell because the fear is that
the President would try to put in somebody who will
do his bidding to cut rates, and that has always
(07:10):
been seen as a terrible thing for the markets and
for economies, because then you don't react to what the
economy needs. You're looking at what the president needs that
would probably bring about high inflation, could slow the economy tremendously.
So that's going to be always on the market's minds.
If J. Powell were removed as chairman of the FED,
(07:31):
that's a separate job from his job as FED governor.
If they can't fire him as a FED governor because
he's one of seven and not the head of it anymore, and.
Speaker 2 (07:39):
These are jobs at those fourteen year terms that you mentioned.
Speaker 1 (07:41):
Yes, and his term as governor runs until January of
twenty twenty eight, where his FED chair runs until May
of next year, and so he could remain on the
Board of Governors, which would mean there is in theory
no opening for the President to appoint somebody else as chair.
(08:02):
There is a FED governor rolling off in January, so
they could put somebody in earlier and say that person's
going to be the chair, and if he stayed around,
he could still influence what happens on the FED because
the Open Market Committee, the group of FED presidents and
governors who set interest rate policy, elect their own chair,
separate from whoever is chair of the FED. Now it's
(08:23):
always been the Chair of the FED, but they can
pick somebody else. So you could have President Trump appoint
somebody as chair of the Federal Reserve Board and then
have the Open Market Committee picked j Poll there remain
as head of the Monetary Policy Committee, and that probably
wouldn't make Donald Trump very happy.
Speaker 2 (08:43):
Last question, Mike, what would happen if the FED were
to lose its long standing foundational independence. Why would that
be so significant?
Speaker 1 (08:50):
Well, what you would have is a loss of confidence
on Wall Street in the FED doing the right thing.
And when people on Wall Street are not confident in something,
they want protection, and so they would raise interest rates
because they would want more compensation for the possibility of
something going wrong. And that would affect everybody. Because the
(09:11):
Fed's the basic interest rate center for the economy, and
so you'd see interest rates in all kinds of categories
rise and that would be a cost to the American people.
Speaker 2 (09:21):
So how could this impact US assets and the US
dollars status as the world's reserve currency. Like colleagues Sarah
Holder and Salaia Mosen tackle those questions after the break, This.
Speaker 3 (09:41):
Isn't the first time President Trump has said he wanted
to removed your own Powell as the head of the
Federal Reserve. Our colleague and Big Take DC host sala
Mosen helped break that story back in twenty eighteen during
the first Trump administration.
Speaker 4 (09:56):
What happened was in December, AFTERW. Powell made a move
that was not aligned with what Trump wanted for the economy.
To juice the economy, Trump publicly said, I think J.
Powell made a mistake. He should have cut rates. And
then at Bloomberg we heard that behind closed doors, Trump
had talked to his White House General Counsel, his lawyer
(10:19):
at the White House to look into ways in which
he could fire J.
Speaker 1 (10:24):
Powell.
Speaker 4 (10:25):
What we saw happen was markets started to panic. We
saw a sell off in multiple assets across the board,
A lot of volatility because it is a third rail
of global finance that the US Central Bank, the most
powerful building almost in the world for the global financial system,
(10:47):
should be independent from political meddling. And it is something
that the Central Bank fought for over decades. It was
kind of solidified in the fifties and then the modern
version of an independent Federal Reserve I've took root in
the nineties, and it was a shock to the system
that any US president would go as far as to
(11:08):
try to find a way to fire this person and
show that politics and what the president wants could affect
what the Fed can and can't do.
Speaker 3 (11:18):
Trump's second term threats to remove Powell have been even stronger.
He said, Powell's termination can't come fast enough. He's renewing
these calls. You mentioned last time. It was a shock
to the system, But we've already had several shocks to
the system already this year. We spoke just a few
weeks ago about how Trump's chaotic tariff rollout was shaking
the foundations of American assets, particularly the dollar and the
(11:41):
market for federal bonds and US treasuries. So can you
just help us understand how the past few weeks, including
this latest statement by Trump about Powell, have started to
change the way the world looks at US assets.
Speaker 4 (11:54):
Sarah, it's a story of American credibility. The US is
looked at as a safe hay in and the world's
best place to invest in for some very key concrete reasons.
The world looks to the US for innovation, for a
great place to park your cash, because there's a guarantee
(12:15):
that it is yours, but most likely you'll get more back.
You'll get a return on that investment. And the foundations
of that are basically American democracy. It's the rule of law.
It's the free and fair elections that we have, a
court system, independent agencies like an independent central bank, press freedoms.
(12:36):
All of these things support a government that backs a
currency that can be trusted. And what we've seen happen
in the last couple of months is he has been
able to fire the heads of some independent agencies, not
the Felleral Reserve, but others, and courts are trying to
reinstate those and now there's a legal battle. He has
(12:58):
ignored court orders to have people who have been deported
illegally have been brought back into the country. He has
done a u turn in global trade that has shaken
the core of the global vigel system, and it is
making every tenant that supports American democracy look weaker, therefore
(13:21):
making American credibility and the credibility of American policy makers
look volatile. And so all of a sudden, American assets
are being questioned, is this the right place to park
my cash?
Speaker 3 (13:34):
Can you give us some context for the depth of
that crisis and confidence for US assets? How has the
US dollars value changed over the past few weeks.
Speaker 4 (13:43):
There's a couple of measuring sticks that we can look at.
One is just the S and P five hundred. We
saw something like six trillion wiped out between April second
and the day that the ninety day pause was announced
for tariffs. We've seen the dollar trade oddly. Actually, theory
predicts that if the US applies tariffs, the world will panic.
(14:05):
And when the world panics, you want the safest asset,
that is the dollar. Laws of supply and demand mean
that if everyone wants the same asset, the value goes up,
the price goes up. That's not what happened. All of
a sudden, people thought, we don't know if the dollar
is safe from Donald Trump. There was a flight of capital.
That's another component.
Speaker 3 (14:25):
And if the US dollar and US assets were to
lose their reserve currency status and were to lose that
reputation and that confidence of the rest of the world,
how would that impact the US economy and indeed the
global economy.
Speaker 4 (14:38):
There's a lot of talk about the US dollar losing
its reserve status, and while it is definitely losing its sheen,
it's not as exciting and it's not as charming anymore.
There's no second place there that could easily step in.
So we're most likely if the dollar is no longer
going to be as high on this pedestal anymore, either
(15:01):
it's going to be a little bit less powerful, or
we're entering into like a multi polar world where several
currencies have more power. The dollar still has the most power,
but less than it used to in other currencies are
starting to rise up. That's one thing, But there are
still huge implications that make their way all the way
from just this very obscure thought of the dollar being
(15:22):
a reserve asset all the way into the pockets of
everyday Americans. And that is the only way that a
country like ours can have the amount of debt and
deficit that we have is because we are the owners
of the reserve asset. That means all of our debt
is so attractive to the world that the interest rate
(15:43):
cost on that debt is low, very very low compared
to any other country. When interest rates are low on
American debt, that means that the interest rate on American mortgages,
on student loans, on our credit card built, all of
that is lower than it could be by several percentage
(16:03):
points and maybe even higher. So that means if the
dollar is all of a sudden losing its attractiveness and
fewer people want to own dollar debt, that means they
don't want our mortgage debt either.
Speaker 2 (16:14):
You know, Fanny and.
Speaker 4 (16:15):
Freddy own most of American mortgages. Foreign investors own most
of that debt.
Speaker 3 (16:21):
Right, So those are the implications for US consumers, US
households if the US dollar loses its reserve currency status.
These are big stakes. Our concerns about the continued strength
of the US dollar and US treasuries and the bond
market premature.
Speaker 4 (16:38):
Concern is definitely warranted. There's a lot of hysteria out there,
and it's hard to cut through that, and that panic
is real, and I can understand where it's coming from.
There should definitely be people thinking about this and hoping
that this steamboat can be turned and we can find
a way back to some stability and predictability. But it's
not a black and white issue. There's no other currency
(17:01):
that can easily come and fill that gap. The Euro
and the Chinese yuan are the two that come up
most frequently. They're two very large currencies, but the Euro
doesn't have the debt instruments and liquidity in their debt
markets that the world needs from a reserve asset, meaning
that they can quickly sell and buy European debt. You
(17:22):
can always find a buyer. You can always find a seller.
US assets are different. There's always a seller and always
a buyer in there. With the Chinese yuan, the key
problem is that they don't have the transparency in their economy.
In finance. They have capital controls. The government controls to
a certain extent, the pricing of the yuan, rather than
letting just market forces and laws of supply and demand
(17:44):
control what the foreign exchange rate is. So most likely
it's not that today we have the dollar as a
world's reserve asset, and we come back into the studio
one year from now, and it's not the reserve asset.
It's not that black and white. It's just that it's
a little less central to the world, and that does
have huge consequences.
Speaker 3 (18:05):
This is The Big Take from Bloomberg News. I'm Sarah Holder.
Speaker 2 (18:08):
And I'm David Gerre. This episode is produced by David
Fox and Julia Press, with assistant from Rachel Lewis Chrisky.
Speaker 3 (18:14):
It was edited by Aaron Edwards and Matt Bosler. It
was fact checked by Audreanatapia and mixed and sound designed
by Alex Seguira.
Speaker 2 (18:21):
Our senior producer is Naomi Shaven. Our senior editor is
Elizabeth Ponso. Our deputy executive producer is Julia Weaver. Our
executive producer is Nicole Beemster Boor. Sage Bauman is Bloomberg's
head of Podcasts.
Speaker 3 (18:33):
If you liked this episode, make sure to subscribe and
review The Big Take wherever you listen to podcasts. It
helps people find the show. Thanks so much for listening.
We'll be back tomorrow.
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:10):
President Trump has a long standing feud with one man
who's central to the US financial system, FET Reserve Chair
Jerome Powell, and at the White House on Thursday, the
President laid down one of his sharpest attacks on Powell. Yet, Powell,
you said that the germination of Rome Powell would not
come fast enough.
Speaker 1 (00:27):
He says he didn't.
Speaker 3 (00:29):
Ask him to.
Speaker 4 (00:30):
Oh he'll live.
Speaker 2 (00:31):
If I asked him to, he'll be out of there.
Speaker 3 (00:32):
But I don't think he's I don't think he's I
don't think he's doing the job.
Speaker 2 (00:38):
He's too late, always too late, a.
Speaker 1 (00:40):
Little slow, and I'm not happy with him.
Speaker 2 (00:44):
Trump nominated Powell to the top job at the FED
in his first term, but the two have had a
rocky relationship ever since. Just days after Trump was re
elected in November, Powell told a reporter he would not
resign if Trump asked, if he asked you to leave,
would you go?
Speaker 3 (01:00):
No?
Speaker 2 (01:02):
Can you follow up on do you think that legally
you're not required to leave? No? But Trump's latest threats
to Powell's job on social media and in front of
microphones and cameras in the Oval office have set off
new alarm bells. They've also introduced some questions, can the
President actually fire the FED chair? What would that do
(01:22):
to financial market seeking stability? And if he follows through,
what would happen next.
Speaker 3 (01:32):
I'm David Gera and I'm Sarah Holder. This is the
Big Take from Bloomberg News Today.
Speaker 2 (01:37):
On the show Donald Trump Versus Jerome Powell, Michael McKee,
Bloomberg's International economics and policy correspondent, joins me to unpack
Trump's threats and whether the President actually has the legal
authority to fire his own FED chair.
Speaker 3 (01:50):
And I talked to Seliah Mosen, Bloomberg senior Washington correspondent
and host of The Big Take DC podcast about what
this fight could meet for the value of the dollar
and the status of US treasuries as a safe haven
in global markets.
Speaker 2 (02:11):
Mike, you and I are speaking on Monday morning, and
already today, President Trump has called Federalserve Church Rome Powell
a major loser in a post on truth Social I
think it's worth noting that Powell was President Trump's pick
to run the FED back in twenty seventeen. How would
you characterize their relationship today?
Speaker 1 (02:29):
Oh, I'd say there's probably very little relationship between the
two of them. Now, Powell and Scott Bessen's, the Treasury Secretary,
meet every week and both of them have described the
meetings as cordial and friendly and businesslike. But I don't
think that the President has spoken to Powell since the
day he nominated him, and it doesn't look like they're
(02:51):
going to be speaking anytime soon.
Speaker 2 (02:52):
Does the President have specific grievances that he's upset with j? Powell?
Speaker 1 (02:56):
For, well, it's all about lowering interest rates. He began
this latest round by noting that the European Central Bank
was going to be cutting rates last week, which they did,
And why isn't the FED doing that? He asked, And
he suggested that the FED is going to be late
if the economy slows down, not mentioning the fact that
Trump would be the reason the economy slows down, and
(03:17):
so he's trying to put pressure on, perhaps create a
scapegoat for whatever happens between now and the end of
the chairman's term.
Speaker 2 (03:27):
Mike, you've covered four Fed chares, Greenspan, Bernank, Yell, and
now Powell, and I wonder how unusual it is to
have the FED chair and the President butting heads like this.
By like this, I mean so publicly.
Speaker 1 (03:39):
There has always been criticism of the FED up on
Capitol Hill, but Pole has worked very hard to win
friends and influence people up on the Hill. He spends
a lot of time up there talking to members, which
is one reason he doesn't seem to be nervous about
what the President is talking about, because he says, I
have a lot of support up there. But presidents generally
stay away from the FED. This began really under Bill
(04:02):
Clinton when Bob Rubin was Treasury Secretary and head of
the National Economic Council, and he suggested that the best
thing for the president to do is not talk about
the FED. And it's been honored by every president except
for Donald Trump. Since we're going.
Speaker 2 (04:18):
To talk about the impact this is having on the
markets in a minute, but I'm curious what you think
the impact is on the FED itself, on the institution,
having the President talking about it and the chairman in
the way that he is.
Speaker 3 (04:29):
Well.
Speaker 1 (04:29):
I've talked to a number of FED officials and they
call it an astraction. It's not something that's going to
interfere with what they're doing, but because they're going to
be asked about it regularly, it is kind of something
that gets in the way a little bit. But remember
what their decision is. They can hold or they can
raise their lower rates, and beyond that, there isn't a
(04:49):
whole lot that they can do.
Speaker 2 (04:51):
So there's the innuendo. There's President Trump calling J. Powell
a loser. There's him raising this kind of specious allegation
that he cut rates to help present and byen Win
or to try to help Vice President Harris Win. Putting
that all aside, there's also this argument that the president's
making that he has the right or the ability to
remove J. Powell as FED chair. He said, you were
(05:11):
talking to experts. I wonder what they say about that
argument that the president's making that he has the latitude
and ability to do that.
Speaker 1 (05:17):
It's been controversial because it's something that's never been tried
and never been litigated in.
Speaker 2 (05:22):
A one d eleven year history of the event.
Speaker 1 (05:24):
Right, in the past, presidents have complained about FED chairs.
Speaker 2 (05:29):
George H. W.
Speaker 1 (05:30):
Bush blamed Alan Greenspan for losing him the nineteen ninety
two election, but they haven't tried to do this. In
the Federal Reserve Act, it says that the president can
only fire a Federal Reserve governor for cause. Now, what
is for cause mean? Historically it's meant malfeasance, in competence,
committing a crime, or being unable to do the job
(05:52):
physically or mentally. Nobody has ever tested that. It is
now being tested by the President in cases involving the
National Labor Relations Board and the Merit Systems Protection Board.
The main case is called Wilcox versus Trump. It's now
before the Supreme Court, and they too have four cause
clauses in their founding documents, and so if the court
(06:15):
were to rule that they could be fired, then it
might open the door to fire Powell. There's a feeling
that the FED is structured differently. When Congress created the FED,
they created it in a number of different ways to
keep political influence out of it. Fourteen year staggered terms
and that sort of thing. So it isn't clear even
(06:36):
if the President wins the right to fire these other people,
that they can fire J. Powell. I think the only
thing we can say is that it would also end
up into the Supreme Court.
Speaker 2 (06:45):
How has all of this played out in the market
so far, this uncertainty.
Speaker 1 (06:49):
Well, right now the market is trying to process so
much that it's a little hard to disentangle J. Powell
from tariffs and things like that. But it does appear
that the markets have reacted to the latest stories about
the possibility of firing Powell because the fear is that
the President would try to put in somebody who will
do his bidding to cut rates, and that has always
(07:10):
been seen as a terrible thing for the markets and
for economies, because then you don't react to what the
economy needs. You're looking at what the president needs that
would probably bring about high inflation, could slow the economy tremendously.
So that's going to be always on the market's minds.
If J. Powell were removed as chairman of the FED,
(07:31):
that's a separate job from his job as FED governor.
If they can't fire him as a FED governor because
he's one of seven and not the head of it anymore, and.
Speaker 2 (07:39):
These are jobs at those fourteen year terms that you mentioned.
Speaker 1 (07:41):
Yes, and his term as governor runs until January of
twenty twenty eight, where his FED chair runs until May
of next year, and so he could remain on the
Board of Governors, which would mean there is in theory
no opening for the President to appoint somebody else as chair.
(08:02):
There is a FED governor rolling off in January, so
they could put somebody in earlier and say that person's
going to be the chair, and if he stayed around,
he could still influence what happens on the FED because
the Open Market Committee, the group of FED presidents and
governors who set interest rate policy, elect their own chair,
separate from whoever is chair of the FED. Now it's
(08:23):
always been the Chair of the FED, but they can
pick somebody else. So you could have President Trump appoint
somebody as chair of the Federal Reserve Board and then
have the Open Market Committee picked j Poll there remain
as head of the Monetary Policy Committee, and that probably
wouldn't make Donald Trump very happy.
Speaker 2 (08:43):
Last question, Mike, what would happen if the FED were
to lose its long standing foundational independence. Why would that
be so significant?
Speaker 1 (08:50):
Well, what you would have is a loss of confidence
on Wall Street in the FED doing the right thing.
And when people on Wall Street are not confident in something,
they want protection, and so they would raise interest rates
because they would want more compensation for the possibility of
something going wrong. And that would affect everybody. Because the
(09:11):
Fed's the basic interest rate center for the economy, and
so you'd see interest rates in all kinds of categories
rise and that would be a cost to the American people.
Speaker 2 (09:21):
So how could this impact US assets and the US
dollars status as the world's reserve currency. Like colleagues Sarah
Holder and Salaia Mosen tackle those questions after the break, This.
Speaker 3 (09:41):
Isn't the first time President Trump has said he wanted
to removed your own Powell as the head of the
Federal Reserve. Our colleague and Big Take DC host sala
Mosen helped break that story back in twenty eighteen during
the first Trump administration.
Speaker 4 (09:56):
What happened was in December, AFTERW. Powell made a move
that was not aligned with what Trump wanted for the economy.
To juice the economy, Trump publicly said, I think J.
Powell made a mistake. He should have cut rates. And
then at Bloomberg we heard that behind closed doors, Trump
had talked to his White House General Counsel, his lawyer
(10:19):
at the White House to look into ways in which
he could fire J.
Speaker 1 (10:24):
Powell.
Speaker 4 (10:25):
What we saw happen was markets started to panic. We
saw a sell off in multiple assets across the board,
A lot of volatility because it is a third rail
of global finance that the US Central Bank, the most
powerful building almost in the world for the global financial system,
(10:47):
should be independent from political meddling. And it is something
that the Central Bank fought for over decades. It was
kind of solidified in the fifties and then the modern
version of an independent Federal Reserve I've took root in
the nineties, and it was a shock to the system
that any US president would go as far as to
(11:08):
try to find a way to fire this person and
show that politics and what the president wants could affect
what the Fed can and can't do.
Speaker 3 (11:18):
Trump's second term threats to remove Powell have been even stronger.
He said, Powell's termination can't come fast enough. He's renewing
these calls. You mentioned last time. It was a shock
to the system, But we've already had several shocks to
the system already this year. We spoke just a few
weeks ago about how Trump's chaotic tariff rollout was shaking
the foundations of American assets, particularly the dollar and the
(11:41):
market for federal bonds and US treasuries. So can you
just help us understand how the past few weeks, including
this latest statement by Trump about Powell, have started to
change the way the world looks at US assets.
Speaker 4 (11:54):
Sarah, it's a story of American credibility. The US is
looked at as a safe hay in and the world's
best place to invest in for some very key concrete reasons.
The world looks to the US for innovation, for a
great place to park your cash, because there's a guarantee
(12:15):
that it is yours, but most likely you'll get more back.
You'll get a return on that investment. And the foundations
of that are basically American democracy. It's the rule of law.
It's the free and fair elections that we have, a
court system, independent agencies like an independent central bank, press freedoms.
(12:36):
All of these things support a government that backs a
currency that can be trusted. And what we've seen happen
in the last couple of months is he has been
able to fire the heads of some independent agencies, not
the Felleral Reserve, but others, and courts are trying to
reinstate those and now there's a legal battle. He has
(12:58):
ignored court orders to have people who have been deported
illegally have been brought back into the country. He has
done a u turn in global trade that has shaken
the core of the global vigel system, and it is
making every tenant that supports American democracy look weaker, therefore
(13:21):
making American credibility and the credibility of American policy makers
look volatile. And so all of a sudden, American assets
are being questioned, is this the right place to park
my cash?
Speaker 3 (13:34):
Can you give us some context for the depth of
that crisis and confidence for US assets? How has the
US dollars value changed over the past few weeks.
Speaker 4 (13:43):
There's a couple of measuring sticks that we can look at.
One is just the S and P five hundred. We
saw something like six trillion wiped out between April second
and the day that the ninety day pause was announced
for tariffs. We've seen the dollar trade oddly. Actually, theory
predicts that if the US applies tariffs, the world will panic.
(14:05):
And when the world panics, you want the safest asset,
that is the dollar. Laws of supply and demand mean
that if everyone wants the same asset, the value goes up,
the price goes up. That's not what happened. All of
a sudden, people thought, we don't know if the dollar
is safe from Donald Trump. There was a flight of capital.
That's another component.
Speaker 3 (14:25):
And if the US dollar and US assets were to
lose their reserve currency status and were to lose that
reputation and that confidence of the rest of the world,
how would that impact the US economy and indeed the
global economy.
Speaker 4 (14:38):
There's a lot of talk about the US dollar losing
its reserve status, and while it is definitely losing its sheen,
it's not as exciting and it's not as charming anymore.
There's no second place there that could easily step in.
So we're most likely if the dollar is no longer
going to be as high on this pedestal anymore, either
(15:01):
it's going to be a little bit less powerful, or
we're entering into like a multi polar world where several
currencies have more power. The dollar still has the most power,
but less than it used to in other currencies are
starting to rise up. That's one thing, But there are
still huge implications that make their way all the way
from just this very obscure thought of the dollar being
(15:22):
a reserve asset all the way into the pockets of
everyday Americans. And that is the only way that a
country like ours can have the amount of debt and
deficit that we have is because we are the owners
of the reserve asset. That means all of our debt
is so attractive to the world that the interest rate
(15:43):
cost on that debt is low, very very low compared
to any other country. When interest rates are low on
American debt, that means that the interest rate on American mortgages,
on student loans, on our credit card built, all of
that is lower than it could be by several percentage
(16:03):
points and maybe even higher. So that means if the
dollar is all of a sudden losing its attractiveness and
fewer people want to own dollar debt, that means they
don't want our mortgage debt either.
Speaker 2 (16:14):
You know, Fanny and.
Speaker 4 (16:15):
Freddy own most of American mortgages. Foreign investors own most
of that debt.
Speaker 3 (16:21):
Right, So those are the implications for US consumers, US
households if the US dollar loses its reserve currency status.
These are big stakes. Our concerns about the continued strength
of the US dollar and US treasuries and the bond
market premature.
Speaker 4 (16:38):
Concern is definitely warranted. There's a lot of hysteria out there,
and it's hard to cut through that, and that panic
is real, and I can understand where it's coming from.
There should definitely be people thinking about this and hoping
that this steamboat can be turned and we can find
a way back to some stability and predictability. But it's
not a black and white issue. There's no other currency
(17:01):
that can easily come and fill that gap. The Euro
and the Chinese yuan are the two that come up
most frequently. They're two very large currencies, but the Euro
doesn't have the debt instruments and liquidity in their debt
markets that the world needs from a reserve asset, meaning
that they can quickly sell and buy European debt. You
(17:22):
can always find a buyer. You can always find a seller.
US assets are different. There's always a seller and always
a buyer in there. With the Chinese yuan, the key
problem is that they don't have the transparency in their economy.
In finance. They have capital controls. The government controls to
a certain extent, the pricing of the yuan, rather than
letting just market forces and laws of supply and demand
(17:44):
control what the foreign exchange rate is. So most likely
it's not that today we have the dollar as a
world's reserve asset, and we come back into the studio
one year from now, and it's not the reserve asset.
It's not that black and white. It's just that it's
a little less central to the world, and that does
have huge consequences.
Speaker 3 (18:05):
This is The Big Take from Bloomberg News. I'm Sarah Holder.
Speaker 2 (18:08):
And I'm David Gerre. This episode is produced by David
Fox and Julia Press, with assistant from Rachel Lewis Chrisky.
Speaker 3 (18:14):
It was edited by Aaron Edwards and Matt Bosler. It
was fact checked by Audreanatapia and mixed and sound designed
by Alex Seguira.
Speaker 2 (18:21):
Our senior producer is Naomi Shaven. Our senior editor is
Elizabeth Ponso. Our deputy executive producer is Julia Weaver. Our
executive producer is Nicole Beemster Boor. Sage Bauman is Bloomberg's
head of Podcasts.
Speaker 3 (18:33):
If you liked this episode, make sure to subscribe and
review The Big Take wherever you listen to podcasts. It
helps people find the show. Thanks so much for listening.
We'll be back tomorrow.
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