One of the most popular parlor games on Wall Street is focused on the battle between President Trump and Sen. Thom Tillis (R-NC) over the confirmation of Kevin Warsh as the new Federal Reserve chair, On The Money has learned.
Mind you – I’m not sure how this high-stakes beef will pan out. I’ve been covering Donald Trump for decades and I have a sense of when he’s bluffing and when he’s ready to fold. I do know that the president hates being dissed by anyone – including and especially a two-term senator.
That said, the latest is that Wall Street thinks that Trump — despite saying this week that “I’ll have to fire [Powell], OK, if he’s not leaving on time” — will blink.
Tillis, a powerful member of the Senate Banking Committee, says he won’t agree to send Warsh’s nomination to the full Senate (where Warsh would likely be approved on a party-line vote) because he thinks the White House’s probe of Fed Chair Jerome Powell over alleged cost overruns on its HQ renovation is bogus, an attempt to usurp the Fed’s status as an independent agency.
Wall Street believes this principled stance and the fact that Wall Street wants an independent Fed will force Trump’s hand – and it amounts to a bet that Trump will ultimately be rational. The last thing the president needs with midterms coming up, the Iran conflict and its disruption of oil supplies (sparking inflation), is for bond traders to start demanding higher interest rates on US debt because they think the White House will be controlling monetary policy and simply print money at will.
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Plus, Tillis isn’t budging. He recently told reporters it might be better for Powell to remain in his job on a temporary basis (which he will by law if Warsh isn’t confirmed when Powell’s term ends in a few weeks) than to have the president exert his influence over the agency. Removing Powell could spark “mayhem” in the bond markets and those dreaded higher interest rates Trump wants to fall to spur the economy.
“As a matter of fact, the mayhem would be if we sent to the financial markets that the Fed serves at the pleasure of the president of the United States, any president of the United States,” Tillis told Fox Business’s Chase Williams. “It is an independent entity that needs to remain that way. And what I’m trying to do is be that stabilizing force.”
But Trump is the president, and even though Tillis has announced he isn’t running for re-election (thus he doesn’t need the president’s endorsement that goes far in GOP circles), the pressure on him to relent will be enormous because Trump simply hates Powell.
Traders coined the term TACO or “Trump Always Chickens Out” when it came to the president’s softening on tariffs after a market backlash, which ignores the fact that tariffs still exist and Trump hasn’t really relented on any parts of his economic agenda, or his foreign policy goals as evidenced by the Iranian blockade.
He thinks Powell’s Fed dissed him by cutting rates right before the 2024 election, allegedly to juice the economy and elect his opponent Kamala Harris (Powell’s people say he was just following the economic numbers showing an economic slowdown) and he wasn’t fast enough in cutting once Trump became president. His alleged over-spending on the new HQ, the so-called “Taj Mahal on the Mall” is proof of his incompetence, and he has vowed to fire the Fed chair for “cause” if he has to.
Trump is pretty adamant about all of the above, though as we all know, he also is a dealmaker. Maybe that’s why people close to Warsh on Wall Street tell me they expect him to become Fed chair in time for the end of Powell’s term in May.
