Happy Retirement

By Philip Marey, senior US strategist at Rabobank

If Fed Chair Jerome Powell is thinking about planning his retirement, his fellow Republicans are giving him plenty of suggestions.

In an interview on Bloomberg TV, Treasury Secretary Scott Bessent talked about the trade negotiations, his role as an intermediate between President Trump and the financial markets, and about Powell’s retirement.

Regarding trade, Bessent said that the 15% tariff for Japan, which is lower than the 25% in Trump’s recent letter to Japan, came about because of the innovative proposal by the Japanese to invest $550 billion in the US. When asked whether the EU had come up with an innovative proposal, Bessent said “Not yet, but again, talks are going better than they had been.” He also indicated that it was easier to negotiate with Japan which “moves as one entity”, rather than with the EU which has a collective action problem given its 27 member nations. Bessent played down a report about the EU preparing to levy 30% retaliatory tariffs on some $117 billion worth of American goods. He said that “it’s a negotiating tactic, and it’s what I would do if I were in their place.”

He said that the US and China were in a good place, after the initial tariff escalation, and “we can start moving on to bigger discussions.” He indicated those included Chinese purchases of sanctioned Russian and Iranian oil along with “a number of security things.” He also said “We will be talking about purchasing agreements, especially on agriculture.” The next talks will take place in Stockholm on July 28-29. Although the truce on tariffs expires on August 12, Bessent said that “I think that we could roll it forward, maybe in a 90-day increment. Both sides have de-escalated, and I think we can get into a very good cadence of regular meetings with them.” Bessent said that the personal relationship between Trump and Xi was good, which was beneficial to the negotiations. Regarding the Phase One deal from Trump’s first term, Bessent said that the Chinese had lived up to the deal when Trump was in office, but later Biden failed to enforce the deal. Bessent that that the US now lets bygones be bygones and is looking ahead to a new deal. He said the US does not want to decouple from China, but needs to derisk its supply chain.

Bessent explained that his role was to explain President Trump’s plan to the financial markets. The Treasury Secretary said there is a plan, and he tries to frame it in such a way that calms the markets. Bessent thinks the markets have taken the recent tariff letters very well.

When asked whether he has a good relationship with Powell, Bessent said they have continuing communication… Bessent said that President Trump has said that he is not going to fire Powell and they are now in the process of finding a new Chair. Bessent also said they were not in a rush. Replacing Governor Kugler is part of the comprehensive procedure. Bessent said that there were good candidates, both on the Board, among regional Fed presidents and outside, including women. He did not go into specifics regarding Governor Michelle Bowman.

Bessent repeated his forward guidance for Powell (see yesterday’s Global Daily) to leave the Board after his term as Chair ends in May 2026. Note that Powell’s term on the Board runs until the end of January 2028. Bessent said: “I think that it would be very good for the institution for him to do it. And I think it’d be very good for him personally to do it.” There are several ways in which we could interpret that last sentence, but let’s assume the Treasury Secretary wishes Powell a happy retirement!

Meanwhile, on Truth Social President Trump posted his suggestions for the Powell:

Housing in our Country is lagging because Jerome “Too Late” Powell refuses to lower Interest Rates. Families are being hurt because Interest Rates are too high, and even our Country is having to pay a higher Rate than it should be because of “Too Late.” Our Rate should be three points lower than they are, saving us $1 Trillion per year (as a Country). This stubborn guy at the Fed just doesn’t get it — Never did, and never will. The Board should act, but they don’t have the Courage to do so!

Finally, in an interview with Bloomberg reporters, House Speaker Mike Johnson said he is “disenchanted” with Jerome Powell. Asked about whether he would support Trump firing Powell, Johnson said he was unclear on the legal authority to dismiss the Fed chief: “But I will tell you that I have been, can I use the word disenchanted?” Johnson indicated he’s open to modifying the Federal Reserve Act. “I think all the scrutiny is appropriate,” Johnson said, referring to investigations into the cost of renovating the Fed’s office buildings and Treasury Secretary Scott Bessent’s decision to explore “mission creep” at the central bank. However, Johnson stressed that the “devil’s in the details,” when it comes to modifying the Federal Reserve Act. “I’m not even sure where the original constitutional authority is for the Fed,” said Johnson. “There is probably some need to reform, but we would have to study that very carefully before Congress got involved in any way to the extent we have jurisdiction over it. You would not want to do it in a reckless manner.”

And of course, Commerce Secretary Howard Lutnick said on Fox News that Powell “should either resign or be replaced.”