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Story around Trump firing Powell threat was 'lack of market reaction', says Jefferies' Zervos

CNBC Television • 4:31 minutes • Published 2025-07-16 • YouTube

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📹 Video Information:

Title: Story around Trump firing Powell threat was 'lack of market reaction', says Jefferies' Zervos
Channel: CNBC Television
Duration: 04:31
Views: 390

Overview

This video features an in-depth market analysis with David Zervos, Jefferies chief market strategist and CNBC contributor, focusing on the recent speculation over the potential removal of Federal Reserve Chair Jay Powell by the president. Zervos discusses the market's muted reaction, the underlying political dynamics of the Federal Reserve, and the implications for Fed independence and future monetary policy.

Main Topics Covered

  • Market reaction to rumors of Fed Chair Jay Powell’s possible removal
  • The political nature of the Federal Reserve and its independence
  • Historical parallels and potential risks of politicizing the Fed
  • Perspectives from major bank CEOs on Fed independence
  • The implications of a new Fed chair aligned with presidential policies
  • The Fed’s risk approach to inflation and economic management

Key Takeaways & Insights

  • The market showed little reaction to news about the potential firing of Jay Powell, indicating either confidence in alternative candidates or skepticism about the likelihood of removal.
  • The supposed independence of the Federal Reserve is more myth than reality; the Fed has always been intrinsically political.
  • Attempts to overtly politicize the Fed, as warned by prominent bankers, risk undermining both U.S. and global financial stability.
  • Historically, Fed chairs have varied in their willingness to take risks with inflation, and a new chair aligned with current administration policies may be more open to such risks.
  • Despite the rhetoric around Fed independence, market participants often incorporate the Fed’s political context into their analyses and expectations.

Actionable Strategies

  • Investors and analysts should factor in the political context of the Federal Reserve when evaluating market and policy risks.
  • It is prudent to monitor not just the Fed chair’s actions but also the political pressures and motivations behind policy shifts.
  • Stay informed on candidate selection for key Federal Reserve positions, as market confidence often hinges on perceived competence and independence.

Specific Details & Examples

  • The president reportedly considered removing Jay Powell “for cause,” though market participants doubted the feasibility and seriousness of this move.
  • Jamie Dimon, JPMorgan CEO, and other banking leaders have publicly emphasized the necessity of Fed independence for national and global economic stability.
  • Zervos references prior Fed chairs (Janet Yellen, Ben Bernanke) who took calculated risks with inflation, suggesting that similar policies could emerge under a new, more politically aligned chair.
  • Historical context: In 2018-2019, Powell reversed earlier rate hikes after economic disturbances, illustrating the Fed’s responsiveness to both market and political pressures.
  • The “creature from Jekyll Island” analogy underscores the idea that the Fed’s origins and ongoing operations are deeply political.

Warnings & Common Mistakes

  • Undervaluing the political dimensions of the Fed can lead to misjudging policy decisions and market responses.
  • Assuming complete Fed independence is a mistake; historical and current evidence points to significant political influence.
  • Overemphasizing stability without recognizing the inherent political risks can leave investors unprepared for sudden policy shifts.

Resources & Next Steps

  • The discussion references the book “Creature from Jekyll Island” for deeper historical context on the Fed’s political nature.
  • Viewers are encouraged to stay updated on official statements from the Federal Reserve, White House, and leading financial institutions.
  • Engage with commentary and analysis from both market strategists and mainstream economists to get a balanced perspective on Fed policy and its implications.

📝 Transcript (146 entries):

[00:01] camera and joining us today for [00:02] a big story, the big story for [00:04] the markets today. Let's get more reaction on the fed with Jefferies chief market strategist and CNBC contributor David Zervos. David, it's great to have you on. You know, it's interesting because you're on CNBC. Earlier today, as we were getting reports that Trump was drafting this letter and planning to potentially do this. [00:20] And then right after that [00:22] hearing from the president [00:24] himself that it's unlikely. And, you know, I sort of leave that with a little bit of a question mark and air quotes that he's going to remove the fed chair before his term is up. I want to get your reaction now, as we've seen all of this play out in real time in the markets over the last couple of hours. >> Well, Morgan, I think yes, you got me at a very specific time during this, this whole saga today. And it was, you know, I in retrospect, I think it was kind of as I said earlier in CNBC, the CNBC interview around 1030, 11:00 New York time, that really the story here is the lack of market reaction that the market was not particularly fussed by the fact that Jay Powell may be maybe fired for cause. And that seems [01:18] like what the president was [01:20] talking about, not for interest [01:22] rates. And then we kind of have learned, I think, as Steve said, that's a pretty big hill to climb with the building. And whether this building really is something that could be the cause of Jay's demise, it's a hard one to figure out. We're not experts and all that, but I would say that the most interesting part of the day was just how little the market really cared, how relevant that might have been, and I chalked it up to the fact that I think there are a lot of good candidates that the president is looking to nominate here. And, and I think the market knows that. And I chalked it up as [02:01] well to the fact that the market [02:03] already knows that the fed [02:04] really is not as independent as [02:07] many think. Something that John was saying in the previous segment. >> So in light of that, I want to get your reaction to what we've heard from a number of the big bank CEOs. Have a listen. >> I think central bank independence, fed independence is very important, and it's something we should fight to preserve. [02:25] >> The stability of this country [02:26] is actually necessary and [02:27] important to the whole world. And I think a stable fed and independent fed is key to that. >> And we also heard from Jamie Dimon in that conference call for JPMorgan yesterday, where he basically warned about how playing around with the fed can have adverse consequences as well. I know you just raised this question of how independent is the fed, really, but how do you also avoid this becoming an Arthur Burns 2.0 situation? If [02:49] you do have a next fed chair [02:52] who's seen as tightly aligned [02:54] with the president and his [02:56] policies. >> I think what the next fed chair will be is someone who probably does take a little bit more risk with inflation, much like Janet Yellen took some risks with inflation, tried to run the economy a little hotter, and actually it worked even better than many had thought. And nobody got too worried about it. Even Ben Bernanke ran the economy with a little bit more focus on inflation risks when he was doing Q1Q2, q three. So I think it's more about the risk taking that the fed takes. And [03:25] this fed is skewed toward not [03:26] doing that, I think for some [03:28] political reasons. And that's historically where Jay Powell was back in 2018, where he seemed to get to in September of last year when he decided to cut 50 instead of 25. And I think the president is like he did in 2018, sort of rebelling against that whole structure. And again, by 2019, Powell was reversing those rate hikes as they they created some problems in the economy. I think Morgan the big story and I hear all your guests, I hear all these CEOs I listen to a lot of very talented mainstream economists talk about the importance of fed independence. The reality is, if [04:06] you really look at the history [04:07] of the fed, it is part of the [04:10] D.C. Swamp. It is the creature from Jekyll Island, as the book says, it was created in Jekyll Island, and that is a swamp creature, and it is political. And we should just live with the fact that we have a political fed. I'm okay with it. I use [04:26] that all the time when I'm doing [04:28] my analysis for our clients to [04:30] try to best serve the