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Gura: Mike, you and I are speaking on Monday morning, and already today, President Trump has called Federal Reserve Chair Jerome Powell “a major loser” in a post on TruthSocial. I think it's worth noting that Powell was President Trump's pick to run the Fed back in 2017. How would you characterize their relationship today?

McKee: Oh, I'd say there's probably very little relationship between the two of them. Now, Powell and Scott Bessent, the Treasury Secretary, meet every week. And both of them have described the meetings as cordial and friendly and businesslike, but I don't think that the president has spoken to Powell since the day he nominated him, and it doesn't look like they're gonna be speaking anytime soon.

Gura: Does the president have specific grievances that he's upset with Jay Powell for?

McKee: Well, it's all about lowering interest rates. He began this latest round by noting that the European Central Bank was going to be cutting rates last week, which they did. And why isn't the Fed doing that, he asked. And he suggested that the Fed is gonna be late if the economy slows down, not mentioning the fact that Trump would be the reason the economy slows down. And so, he's trying to put pressure on and perhaps create a scapegoat for whatever happens, between now and the end of the chairman's term.

Gura: Mike, you’ve covered four Fed chairs: Greenspan, Bernanke, Yellen, and now Powell. And I wonder how unusual it is to have the Fed chair and the president butting heads like this. By “like this,” I mean so publicly?

McKee: There has always been criticism of the Fed up on Capitol Hill. But Powell has worked very hard to win friends and influence people up on the Hill. He spends a lot of time up there talking to members,which is one reason he doesn't seem to be nervous about what the president is talking about because he says ‘I have a lot of support up there.’ But presidents generally stay away from the Fed. This began really under Bill Clinton when Bob Rubin was Treasury secretary and head of the National Economic Council and he suggested that the best thing for the president to do is not talk about the Fed. And it's been honored by every president, except for Donald Trump, since.

Gura: We're gonna talk about the impact this is having on the markets in a minute but I'm curious what you think the impact is on the Fed itself, on the institution. Having the president talking about it and the chairman in the way that he is?

McKee: Well, I've talked to a number of Fed officials and they call it a distraction. It's not something that's going to interfere with what they're doing but because they're gonna be asked about it regularly it is kind of something that gets in the way a little bit. But remember what their decision is, they can hold or they can raise their lower rates and beyond that there isn't a whole lot for them that they can do.

Gura: So there's the innuendo. There's President Trump calling Jay Powell a loser. There's him raising this kind of specious allegation that he cut rates to help President Biden win or to try to help Vice President Harris win. Putting that all aside, there's also this argument that the president's making that he has the right or the ability to remove Jay Powell as as Fed chair. You said you were talking to experts, I wonder what they say about that argument that the president's making that he has the latitude and ability to do that.

McKee: It's been controversial because it's something that's never been tried and never been litigated.

Gura: In a 111-year history of the Fed.

McKee: Right. In the past presidents have complained about Fed chairs. George H.W. Bush blamed Alan Greenspan for losing him the 1992 election. But they haven't tried to do this. In the Federal Reserve Act, it says that the president can only fire a Federal Reserve governor for cause. Now what does for cause mean? Historically, it's meant malfeasance, incompetence, committing a crime or being unable to do the job, physically or mentally. Nobody has ever tested that. It is now being tested by the president in cases involving the National Labor Relations Board and the Merit Systems Protection Board, the main case is called Wilcox v. Trump. It's now before the Supreme Court and they too have “for cause” clauses in their founding documents. And so if the court were to rule that they could be fired then it might open the door to fire Powell. There's a feeling that the Fed is structured differently. When Congress created the Fed, they created it in a number of different ways to keep political influence out of it: 14-year staggered terms and that sort of thing. So it isn't clear even if the president wins the right to fire these other people that they can fire Jay Powell. I think the only thing we can say is that it would also end up at the Supreme Court.

Gura: How has all of this played out in the market so far, this uncertainty?

McKee: Well, right now the market is trying to process so much that it's a little hard to disentangle Jay Powell from tariffs and things like that. But it does appear that the markets have reacted to the latest stories about the possibility of firing Powell because the fear is that the president would try to put in somebody who will do his bidding to cut rates, and that has always been seen as a terrible thing for the markets and for economies because then you don't react to what the economy needs, you're looking at what the president needs. That would probably bring about high inflation, could slow the economy tremendously. So that's gonna be always on the market's minds. If Jay Powell were removed as Chairman of the Fed, that's a separate job from his job as Fed governor. If they can't fire him as a Fed governor cause he's one of seven and not the head it any more—

Gura: And these are jobs with those 14-year terms that you mentioned.

McKee: Yes, and his term as governor runs until January of 2028, where his term as Fed chair runs until May of next year. And so he could remain on the board of governors which would mean there is, in theory, no opening for the president to appoint somebody else as chair. There is a Fed governor rolling off in January so they could put somebody in earlier and say that person's going to be the chair. And if he stayed around, he could still influence what happens on the Fed because the Open Market Committee, the group of Fed presidents and governors who set interest rate policy, elect their own chair, separate from whoever is chair of the Fed. Now it's always been the chair of the Fed, but they can pick somebody else. So you could have President Trump appoint somebody as chair of the Federal Reserve Board and then have the Open Market Committee pick Jay Powell to remain as head of the Monetary Policy Committee, and that probably wouldn't make Donald Trump very happy.

Gura: Last question, Mike: What would happen if the Fed were to lose its longstanding foundational independence? Why would that be so significant?

McKee: Well, what you would have is a loss of confidence on Wall Street in the Fed doing the right thing and when people on Wall Street are not confident in something, they want protection. And so, uh, they would raise interest rates because they would want more compensation for the possibility of something going wrong. And that would affect everybody because the Fed’s the basic interest rate setter for the economy. And so you'd see interest rates in all kinds of categories rise, and that would be a cost to the American people.

Gura: So how this could impact US assets — and the US dollar’s status as the world’s reserve currency? My colleagues Sarah Holder and Saleha Mohsin tackle those questions after the break.

Holder: This isn't the first time President Trump has said he wanted to remove Jerome Powell as the head of the Federal Reserve. Our colleague and Big Take DC host Saleha Mohsin helped break that story back in 2018 — during the first Trump administration:

Saleha Mohsin: What happened was in December after Powell made a move that was not aligned with what Trump wanted for the economy to juice the economy, Trump publicly said, ‘I think Jay Powell made a mistake. He should have cut rates.’ And then at Bloomberg, we heard that behind closed doors, Trump had talked to his White House general counsel, his lawyer at the White House to look into ways in which he could fire Jay Powell. What we saw happen was markets started to panic. We saw a selloff in multiple assets across the board. A lot of volatility because it is a third rail of global finance that the US central bank — the most powerful building, almost in the world, for the global financial system — should be independent from political meddling. And it is something that the central bank fought for over decades. It was kind of solidified in the fifties. And then the modern version of an independent Federal Reserve took root in the nineties, and it was a shock to the system that any US president would go as far as to try to find a way to fire this person and show that politics and what the president wants could affect what the Fed can and can't do.

Holder: Trump's second term threats to remove Powell have been even stronger. He said Powell's termination can't come fast enough. He's renewing these calls. You mentioned last time it was a shock to the system, but we've already had. Several shocks to the system already this year. We spoke just a few weeks ago about how Trump's chaotic tariff rollout was shaking the foundations of American assets, particularly the dollar and the market for federal bonds and US treasuries. Saleha, can you just help us understand how the past few weeks, including this latest statement by Trump about Powell, have started to change the way the world looks at US assets?

Mohsin: Sarah, it's a story of American credibility. The US is looked at as a safe haven and the world's best place to invest in for some very key, concrete reasons. The world looks to the US for innovation, for a great place to park your cash because there's a guarantee that it is yours, but most likely you'll get more back, you'll get a return on that investment. And the foundations of that are basically American democracy. It's the rule of law. It's the free and fair elections that we have. A court system. Independent agencies, like an independent central bank, press freedoms. All of these things support a government that backs a currency that can be trusted. And what we've seen happen in the last couple of months is he has been able to fire the heads of some independent agencies, not the Federal Reserve, but others and courts are trying to reinstate those. And now there's a legal battle. He has ignored court orders to have people who have been deported illegally, have them brought back into the country. He has done a U-turn in global trade that has shaken the core of the global financial system. And it is making every tenet that supports American democracy look weaker, therefore making American credibility and the credibility of American policy-makers look volatile. And so all of a sudden American assets are being questioned. Is this the right place to park my cash?

Holder: Can you give us some context for the depth of that crisis in confidence for US assets? How has the US dollar’s value changed over the past few weeks?

Mohsin: There's a couple of measuring sticks that we can look at. One is just the S&P 500. We saw something like $6 trillion wiped out between April 2 and the day that the 90-day pause was announced for tariffs. We've seen the dollar trade oddly, actually. Economic theory predicts that if the US applies tariffs, the world will panic, and when the world panics, you want the safest asset. That is the dollar. Laws of supply and demand mean that if everyone wants the same asset, the value goes up, the price goes up. That's not what happened. All of a sudden people thought, we don't know if the dollar is safe from Donald Trump. There was a flight of capital. That's another component.

Holder: And if the US dollar and US assets were to lose their reserve currency status and were to lose that reputation and that confidence of the rest of the world, how would that impact the US economy and indeed the global economy?

Mohsin: There's a lot of talk about the US dollar losing its reserve status. And while it is definitely losing its sheen — it’s not as exciting, it’s not as charming any more — there's no second place there that could easily step in. So we're most likely, if the dollar is no longer gonna be as high on this pedestal any more, either it's going to be a little bit less powerful or we're entering into a multi-polar world where several currencies have more power. The dollar still has the most power, but less than it used to, and other currencies are starting to rise up. That's one thing. But there are still huge implications that make their way all the way from just this very obscure thought of the dollar being a reserve asset all the way into the pockets of everyday Americans. And that is the only way that a country like ours can have the amount of debt and deficit that we have is because we are the owners of the reserve asset. That means all of our debt is so attractive to the world that the interest rate cost on that debt is low — very, very low compared to any other country. When interest rates are low on American debt, that means that the interest rate on American mortgages, on student loans, on our credit card bill, all of that is lower than it could be by several percentage points and maybe even higher. So that means if the dollar is all of a sudden losing its attractiveness and fewer people want to own dollar debt, that means they don't want our mortgage debt either. You know, Fannie and Freddie own most of American mortgages, foreign investors own most of that debt.

Holder: Right, so those are the implications for US consumers, US households, if the US dollar loses its reserve currency status. These are big stakes. Are concerns about the continued strength of the US dollar and US Treasuries and the bond market premature?

Mohsin: Concern is definitely warranted. There's a lot of hysteria out there and it's hard to cut through that. And that panic is real and I can understand where it's coming from. There should definitely be people thinking about this and hoping that this steamboat can be turned, and we can find a way back to some stability and predictability. But it's not a black-and-white issue. There's no other currency that can easily come and fill that gap. The euro and the Chinese yuan are the two that come up most frequently. They're two very large currencies. But the euro doesn't have the debt instruments and liquidity in their debt markets that the world needs from a reserve asset, meaning that they can quickly sell and buy, uh, European debt. You can always find a buyer. You can always find a seller. US assets are different. There's always a seller and always a buyer in there. With the Chinese yuan, the key problem is that they don't have the transparency in their economy, in finance. They have capital controls. The government controls to a certain extent the pricing of the yuan rather than letting just market forces and laws of supply and demand control what the foreign exchange rate is. So most likely it's not that today, you know, we have the dollar as the world's reserve asset and we come back into the studio one year from now and it's not the reserve asset. It's not that black and white. It's just that it's a little less central to the world and that does have huge consequences.

--With assistance from Rachael Lewis-Krisky.

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