Fed Chief Not Leaving: Tells Congress Fed Will Do What It Takes

Can the President fire the Federal Reserve Board chairman? No, it wasn’t President Donald Trump asking (demanding) again this time round.

Instead, Congressional representatives were asking Fed chairman Jerome Powell himself what he thought about the president’s oft-repeated desire to sack him.

Unsurprisingly, the current chair doesn’t think that’s legal, and neither does the legislature. The law appears to be on Powell’s side, but the president’s drum beating on the issue seems to have accomplished much of what he wants anyway, which is lower rates.

Last week, during Powell’s semi-annual two days of Congressional testimony, Maxine Waters (D-CA) asked him how he would respond if the President “called [him], today or tomorrow, and said, ‘I’m firing you. Pack up. It’s time to go.’” Powell replied, “Of course, I would not do that.” Both parties in Congress support the notion of an independent Fed, a rare topic for bipartisanship. During the two-day testimony, both Republicans and Democrats routinely expressed support for an independent Fed, and for Powell as chairman.

And yet, despite this assertion of independence, the Fed appears to be appeasing the president. In his responses, Powell signaled the central bank is in fact leaning towards a rate cut at its next policy meeting July 30-31 (something President Trump has been clamoring for on Twitter), and just as the CME fed futures market has predicted.

Though the domestic economy is in good shape, Powell suggested economic data coming out of Europe and Asia has been disappointing. In fact, most recent manufacturing purchase manager indexes for Eurozone area and China are below 50, an indication of a contracting economy. Thus, the Fed intends “to act as appropriate to sustain the expansion.” What that comment seems to signal…President Trump may get that rate cut he’s been demanding.

The 10-year Treasury note yield was around 2.12%, versus 2.01% the Friday before. The CME Fed futures market, a pretty accurate indicator of where rates are going, continues to place a 100% probability of at least one cut at the next FOMC meeting July 31 and another in September.

Upcoming: 7/30-31 - FOMC meeting.

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