Trump to Fire Jay Powell? No. Bank Earnings? Nada. Bayview for Sale?

April 22, 2025 | Premium Service | Updated | Last week we put down the obvious long gold, short dollar trade. The markets continue to reject the America-first agenda of the Trump Administration, but we suspect that a lot of this fuss comes from shock after years of excessive monetary ease by the Federal Reserve Board. Time to wake up from the long QE slumber kiddies.

In fact, President Donald Trump’s trade offensive is entirely successful in terms of marginalizing China, at least judging by Beijing’s increasingly shrill threats of retaliation against nations that cut deals with Washington. Isolating communist China was always the point of Trump's trade offensive.

Below for the benefit of annual subscribers to our Premium Service, we report on some of the more interesting developments in Q1 2025 earnings and also the market conditions as mortgage companies start to report this week. But first let’s talk about the sophomoric media commentary swirling around the public spat between President Donald Trump and Fed Chairman Jerome Powell. 

As we note in our upcoming book Inflated: Money, Debt and the American Dream, Presidents always think that they can control Fed governors, but the control ends as soon as the individual is appointed and is then confirmed by the Senate. The next Fed Chairman is likely to be far less disposed to provide excessive liquidity to markets, perhaps the more cogent observation to make about the Fed post-Jerome Powell.  

President Trump will not try to fire Chairman Powell, as he confirmed after this edition of The IRA was published. Why not? First, Presidents appoint Fed chairmen, but they are confirmed by the Senate and thus can only be removed via impeachment. Second and more important, firing Powell will seriously piss off Senate Republicans, killing President Trump's hopes for tax legislation this year. And to add to the stakes, Treasury Secretary Scott Bessent would likely resign if Trump disregards his advice on dealing with the Fed.

Rather than speculate about whether the Fed under a new chairman would cut the target for short-term interest rates, maybe we should ask whether the next more conservative Fed Chairman will support expansion of the Fed’s balance sheet in the face of massive fiscal deficits. Keep in mind that President Trump could have tried to fire Powell in January, but advisers from Treasury Secretary Bessent on down are urging caution. Trump knows that if he tries to fire Powell, he loses any control over the Senate and that means no tax cuts.  

Leaving aside the latest Trumpian tantrum about interest rates, the bigger point to make is about the nature of the central bank. Just as William McChesney Martin ultimately betrayed President Harry Truman after his appointment in 1951, Donald Trump will lose control of his choice to replace Jerome Powell on day one.  And if Trump is not careful with his public comments, Powell may just remain on the Fed Board for the rest of his term as governor through January 2028. This will force Trump to select the new chairman from among the existing governors. We kind of like the idea of Chairman Michele "Miki" Bowman.

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