Trump Says Firing Fed Chair Is 'Highly Unlikely,' But Here's How The Move Would Shake Global Economy

Forbes Breaking News

Clifford Winston, economist and author of the upcoming book, "Market Corrections Not Government Interventions" joined "Forbes Newsroom" to discuss President Trump's recent criticisms of Federal Reserve chair Jerome Powell, as well as the economic impacts of the Big Beautiful Bill.

Transcript

00:00Hi, everybody. I'm Brittany Lewis, a breaking news reporter here at Forbes.

00:07Joining me now is Clifford Winston, economist and author of the upcoming book,

00:11Market Corrections, Not Government Interventions, A Path to Improve the U.S. Economy. Clifford,

00:17thank you so much for joining me once again. Nice to be here. Good talking to you again.

00:21Last week, there were reports that President Trump was thinking about firing the chair of

00:26Federal Reserve Jerome Powell. Trump later addressed that reported plan, saying that it was highly

00:31unlikely that he would fire Powell, quote, unless he has to leave for fraud. So what do you make of

00:38those reports that he was even mulling this over? And what do you make of that caveat there? Probably

00:43won't fire him unless there's fraud involved. Right. So given what we're going to be talking

00:49about, let me let me just take this from a somewhat bigger perspective in terms of, you know, what is

00:54Trump saying that he may fire the head of the Fed, Federal Reserve, say about his views about

01:04government? Okay. In other words, you know, one thing could be that, no, I don't believe that the

01:13government should even be in charge of the Federal Reserve, that the private sector should print money

01:19and they should decide who gets it in terms of loaning it out. Right. What do we even have the

01:24government involved in this? You know, that could be one perspective. It's not a popular one. And I

01:29don't think anybody's advocating, but it starts our thinking about it. Alternatively, you can say,

01:36okay, no, the Federal Reserve should be in charge of interest rates and loaning money to the member

01:42banks, so on and so forth. But, you know, we need to have them do it better in some way

01:49that really isn't defined. Because after all, the Federal Reserve draws on many people to help them

01:57in making their decisions. So when Trump starts talking about firing the head of the Fed, what

02:04really is he saying? Is he saying, well, I want to just change how we do monetary policy in the United

02:11States and rely more on the private sector? Or do I want to reform it? And it's hard to say that he

02:18really cares about either of those things, as much as he just doesn't like doing it the way

02:24the Fed chairman's doing it. So it starts to open the question, does he really have a nihilistic

02:31approach to government? That is, I don't really believe in government. I don't believe in the private

02:37sector. I just believe in doing it my way. And I think that is what's raising concerns

02:42about him saying that he wants to fire Chairman Powell.

02:47And we're going to get into what you call a nihilistic approach to government in a little

02:52bit. But I think there are two separate questions when you're talking about the potential for the

02:57president to fire the chair of the Fed, because the Fed is by nature nonpartisan. So A, what type of

03:05precedent would this send, say a president fire the chair of the Fed? And B, this is separately,

03:11do you think Jerome Powell is doing a good job as chair of the Fed? So let's talk about the first

03:17part of that question. What message is this sending?

03:19A terrible message. It'll basically just say that, you know, there's really no reason to have a long

03:27term view of monetary policy. It basically is going to go at the wings of the president and all the

03:33things that you want in monetary policy, certainty, predictability in terms of what's happening,

03:41at least so that you can make plans for investments and so on and so forth, are out the window,

03:47because they can change at the president's whim. So it's a very dangerous policy when you're dealing

03:54with so many variables that depend on expectations, interest rates, exchange rates, all sorts of assets

04:02where you have to look to the future, you have to have some sense about what's going to be going on,

04:08and then you make your decisions accordingly. If you have no confidence in what's going on in the

04:12future, you're just going to sort of fold up business and say, I'm going to wait. I'm too concerned

04:17to spend. I'm too concerned to invest. So basically, it could freeze the economy if we really get the

04:24sense that all we're going to be doing is thinking about the short term. And I'm sure, let's say you're

04:30a Republican, and let's say you don't think Fed Chair Powell is doing that good of a job, but would

04:34you want a Fed chair that kowtows to the president's whim? Would you want someone, because then a Democrat

04:41will eventually be president again in this country, I'm sure. And then would we be, would that Fed chair

04:47be concerned then that, oh, this president could fire me too, because it's happened before to Powell

04:52or it's happened before to another guy? I mean, what do you make of that? Exactly. No, that's, again,

04:57this is an area where there should not be any political division, because either party can be

05:04vulnerable. And even somebody who's, quote, their own, of their own party could decide, well, no,

05:10I'm not going to do this. And after the fifth time, he has to change what he's doing in,

05:17in less than a few months, then he's saying, no, I'm going to do things my way. And it'll cause a lot

05:23of chaos. So I don't really see any intellectual argument for this. And I'm not even clear that

05:31anybody's making it. I mean, you can say, I don't like the job that Chairman Powell is doing, but what's

05:39your standard? Right? I mean, this is a problem that we've been dealing with effectively for

05:45centuries in the sense of what is the optimal interest rate? No one knows the answer to that.

05:52And there are some very smart people who've gotten Nobel Prizes for their answer, but it's not a

05:59definitive answer. And even today in the Times, you saw op-ed by both Bernanke, who did win a Nobel

06:08Prize, and Janet Yellen, who's a first rate economist, is saying, look, these are hard

06:14problems. We can make mistakes, but you really have to let us sort this out. And I think that's

06:21just the wide view of virtually all economists and people who are seriously thinking about this.

06:28I think that this is one of the riskiest things that Trump has been playing with.

06:33As I said, the implications go way beyond what he thinks they go beyond. It's not just our

06:40budgetary issues and how much debt we're going to pay back. This is going to affect the global economy

06:46if you start messing around with the credibility of our monetary policy.

06:52I mean, dive a little deeper here and paint that picture. What does the global economy look like

06:57should a president boot out the Fed chair?

07:00So look at the other things that are affected. OK, what about exchange rates? Right. Interest rates

07:08then are going to be cut all of a sudden down to what, one percent that Trump wants. I don't know

07:13where he got that number, but let's just go with it. And so exchange rates are going to fall in the U.S.

07:20and people say, oh, great. But what does that mean? It means that, yes, our exports are cheaper,

07:26but our imports are a lot more expensive. And so you're going to get inflationary pressures there.

07:31Then you're going to say, well, at least we can buy our domestic product. Sure. But you don't think

07:36people are going to raise prices once all of a sudden people start switching away from French wine to

07:42California wine in a much bigger way than they've done in the past? They're going to raise their prices.

07:47So you're going to get all these inflationary pressures. Right. And then you're going to say,

07:52oh, I've got to raise interest rates again, but I just cut them. Right. I mean, that's the kind of

07:58example that you have that once you start thinking about the broader global economy.

08:04And you talked about this, what you called nihilistic approach to President Trump,

08:08President Trump has to policy, to perhaps government. You wrote about that earlier about Trump's big,

08:15beautiful bill. You said it shows, quote, Trump's anti-government, but not pro-market approach to

08:20policymaking. It's nihilistic and does not bode well for the nation's material quality of life.

08:26Talk to us a little bit about what you mean there.

08:28OK, so again, you know, what I think all economists have been trying to do is trying to figure out

08:33what is it that really drives Trump? Because he's very unusual. We've not really had a president like

08:38this that, you know, either clearly believes in markets or clearly believes in what we would call

08:45efficient government policy reform. That is, you recognize that government has flaws, but

08:51you believe that government can play a constructive role and it just needs to be told the right thing

08:56to do. And you as president are going to do that. The problem that I think we've been having with Trump

09:01is we can't figure out where he stands. He goes ahead with this major bill and talks about deregulation.

09:09Now, that has meant something to us for several decades under many presidents.

09:15Deregulation means removing regulations on entering an industry, exiting an industry and pricing in the

09:25industry. The government sets all that. And when we deregulate industry like we did with airlines,

09:31railroads, natural gas, many things, that's what we're thinking about, economic deregulation.

09:37And every president up to Trump did something of that sort. And then you add that a form of deregulation

09:44with free trade. Other presidents, Obama, Clinton, moved in that direction. OK, Trump has not done that

09:52in anything. And he's had the opportunity to do it. He could have deregulated ocean transportation

09:58and gotten rid of the Jones Act, which he seriously considered doing, but he decided not to do it

10:03in the end. He can do the same thing in international airline transportation. We do not allow foreign

10:10airlines to serve American routes, which could be a source of competition. It also could make

10:15international travel easier because you could have seamless travel. In other words, you could use an

10:22American carrier all the way to Europe and including connecting flights. That could be deregulated,

10:28but we don't have that. So it's hard to point to deregulation. Yet he then says, we're going to

10:35deregulate environmental policies. I think it's a wrong use of the term, but let's again, let's go with

10:42it and say, we're going to get rid of subsidies for electric vehicles. OK, but that gets us on. All

10:50right, let's think about efficient government policy reform. I agree with Trump on that. I would too

10:58like to get rid of subsidies for electric vehicles because they're a bad, inefficient policy for trying

11:05to encourage purchases of electric vehicles. In other words, what you really want to do is discourage

11:14people who are doing the polluting, right? Buy cars that obviously are more fuel efficient and don't emit

11:24as much pollutants and ideally even getting some people to switch to electric vehicles, charge them,

11:31a tax, disincentivize people for doing that, and raise money that you could use for the deficit

11:38instead of spending government money and subsidies to reward people for buying EVs. So that would be

11:45an efficient policy, but he's not even doing that. So where is he on this? Well, what about markets?

11:53Who would be the real major competitor to the U.S. to stimulate market competition? The Chinese.

12:03Chinese have the largest share of electric vehicle sales in the world. Let them compete,

12:09but let them compete in the U.S. This is what we did with the Japanese in the 80s when they came and

12:14built plants here and basically transformed the industry with fuel efficient vehicles that the public

12:21like. Same idea. Chinese invite them, so to speak. Let them build plans and compete here. There'll be

12:30conditions. They can't get subsidies from the Chinese government to give them a competitive advantage over

12:36the domestic firms. They're going to have to meet security terms of the government. And of course,

12:44by building them here, they'll be using American workers. All right. Once we have that, we compete with

12:50them. This is going to lead to an increase in sales of EVs, no question about it, and hopefully help the

12:58industry to become more competitive. Do you think Trump wants that? No way. So what does he really

13:05believe in? Hard to say. Not markets, that's for sure. And he doesn't even believe in efficient

13:13government reform. So that's where I come out on this and say, this is just nihilistic.

13:18So what you're saying, it's anti-government, but not pro-market approach. Once again, what is the

13:24impact of that on the global economy? Makes things very chaotic. And I think that's exactly how people

13:31are reacting. They just don't know what to make of this guy. And it makes things very difficult to plan.

13:36It makes it very difficult to approach him. But somehow, people are rolling with it. The stock

13:45market's doing very well. I can't say that all this chaos is showing up somewhere in the stock market or

13:53any other financial market yet. But I think that's what our concern is yet. It's becoming increasingly

14:01clear that it's very hard to figure out where Trump is coming from. There's lots of reasons to have

14:07insecurities about what this world's going to be. And of course, even just throwing out these various

14:12things that he's doing is very, let's say, destabilizing. And of course, you don't know when

14:19you're going to go back to things. Like, what happened to our invasion of Greenland? What happened to

14:24our invasion of Canada? When's that coming back? Right? So there's sort of this strange

14:30thought of the day. And maybe people are just getting used to it and say, look, don't take

14:35any of this seriously. We're going to do what we do. And thus far, the market is suggesting that's

14:39exactly what they're doing. But if he does some of these things, it's going to be scary. So we'll

14:45just have to hold on. But it's just not the way that a president really should be trying to guide an

14:51economy. I don't know how to feel talking to an economist saying, you know, brace for impact.

14:56It hasn't we haven't seen much yet, but it's to come. I mean, what do you make of when should

15:03people expect that to come? When do you think that that shoe will drop and we'll really see it in the

15:08market? Oh, now, look, if I knew that, I wouldn't tell you. You definitely wouldn't tell me. And yeah,

15:14you probably wouldn't be talking to me right now. You'd probably be doing something else.

15:16I'd be making money. Exactly.

15:18I'd be knowing what to shorten the stock market and making money on all this. So it's probably not

15:26a good idea ever to ask an economist to give that kind of forecast. But I think the question really

15:32is, is once we can get a sense of a committed path, in other words, once tariffs are locked in,

15:40you know, once he decides once and for all, who's going to be a Fed chair, he may drag this out,

15:46trying to make Powell as miserable as he can, hope he quits, he won't quit, but then he picks

15:51somebody. You know, if he picks somebody who's clearly a lackey, that's going to be a commitment

15:55and that's going to be something that people are going to worry about. So I think at this point,

15:59there's just too much speculation. And I think the time to sort of, you know, get a little more

16:04concerned is, OK, he's really committed to this path. He's really committed to these tariffs.

16:10They're going to be in for a while. He's really committed to having a big say in,

16:16interest rate policy by the Fed, because he's picked this person who's just going to say,

16:21you know, how high should I jump when you tell me to jump? Right. It's not that kind of thing

16:26that's going to happen to give us a better sense of preparation. But look, every day is different.

16:33I mean, every day is a new day with him. So, you know, I think we have to at this point

16:38play it out accordingly.

16:40Clifford, you're so right. Every day truly is a new day. And as there are developments,

16:45which I'm sure there will be plenty, I hope you can come back on and break them down. Clifford

16:51Winston, thank you so much for joining me. You're welcome back anytime.

16:54Thank you for having me. Look forward to talking again.

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