Federal Reserve Chair Jerome Powell Faces Pressure Amidst Rate Cut Demands
Impacton Mortgage and Savings Interest Rates if Trump Dismisses Jerome Powell
In a tense political climate, Federal Reserve Chair Jerome Powell finds himself under increased pressure to lower interest rates, with President Donald Trump publicly criticizing Powell and even drafting a letter for his dismissal, according to reports from The New York Times. However, Powell's term runs until May 2026, and the Federal Reserve's independence traditionally protects the Chair from direct removal by the President.
The likelihood of Powell being removed from his position is currently low, but the political pressure is mounting. If Trump were to remove Powell, it's reasonable to assume he would appoint someone more policy compliant with the current administration. This speculation comes after the president has already removed two Democratic members of the Federal Trade Commission in March.
The ongoing debate between Powell and Trump revolves around interest rates. Powell is taking a wait-and-see approach to the economic situation, while Trump is demanding interest rate cuts. The Fed's decision to cut rates three times by the end of 2024 did not result in mortgage rates following suit.
The 10-year Treasury yield, which represents the government's borrowing costs for a decade, is of high concern now because of its role as an economic indicator. When the 10-year Treasury yield goes up, the borrowing costs of the government rise too. Rate cuts lower the rates of return savers receive on high-yield savings accounts, CDs, and money market accounts.
One of the fired commissioners, Rebecca Kelly Slaughter, claimed Trump illegally fired her from her position. There is Supreme Court precedent from a 1935 case (Humphreys Executor vs United States) that states the Constitution doesn't allow a president illimitable power to remove people. The Trump administration wants this ruling overturned, which would lay the groundwork for Powell's dismissal.
Currently, Powell cannot be fired without cause, as he has stated. Firing Powell alone won't mean that the new head can institute rate cuts, as the Federal Open Market Committee has 12 voting members, and Powell is still a voting member through 2028.
The CME FedWatch indicates a 60% chance of rate cuts at the September meeting. For those looking to secure higher rates of return on savings accounts or CDs before rate cuts happen, now might be the best time. CDs offer some protection from rate cuts, as the rate you lock in is the rate you'll receive throughout the CD term.
For those planning to buy a home soon, your best hope is to shop around for the most affordable rates. The best time to get a mortgage is when you need one, and you can plan to refinance in the future - but make sure to shop around first. If you're looking to buy a home soon, now might be the opportune moment to secure the best rates.
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