White House stokes speculation of Powell’s dismissal… Nitpicks ‘excessive Fed building costs’

Korea Economic Daily

Summary

The Trump administration is reportedly citing excessive spending on Fed building renovation as grounds for the dismissal of Fed Chair Jerome Powell.
It is noted that the market has not fully reflected the possibility of Powell’s dismissal and the ensuing risks.
Deutsche Bank forecasts that if Powell is dismissed, the dollar's value could drop by 3–4% within 24 hours, and U.S. Treasury yields could rise by up to 0.4 percentage points.

"President holds authority to dismiss Chair"

Market concerned over decline in dollar value

There is growing speculation that President Donald Trump is attempting to oust Jerome Powell, Chair of the Fed, by using the alleged excessive costs of constructing the Fed building as a pretext. President Trump has continued to pressure Powell for removal after Powell did not heed his demands for an interest rate cut.

Kevin Hassett, Director of the National Economic Council at the White House, said in an interview with ABC News on the 13th (local time) that "the response to Russell Vought’s inquiry to the Fed will be a major factor" when asked if the Fed's renovation expenses could be grounds for Powell’s dismissal.

Director Vought sent a letter to Chair Powell on the 10th, protesting that the Fed is suspected of violating regulations by allocating an excessive budget to headquarters renovations during Powell’s tenure. The White House claims the installation of a rooftop garden, artificial waterfall, VIP elevator, and marble decorations increased construction expenses by $700 million to a total of $2.5 billion, far above the original plan.

When asked whether the President has the authority to fire the Fed Chair, Hassett answered, "It is an ongoing matter, but if there is a reason, the President clearly has the authority." Hassett is regarded as one of the candidates for the next Fed Chair.

U.S. media report that the Trump administration’s focus on the Fed’s construction spending suggests they are seeking grounds to dismiss Powell. Concerns are rising that Powell’s removal by the Trump administration may indeed materialize. George Saravelos, a strategist at Deutsche Bank, assessed in a report that the financial markets have not sufficiently priced in the risks and likelihood of Trump dismissing Powell.

Polymarket, an event prediction betting site, currently prices the possibility of Powell’s dismissal at below 20%.

However, Saravelos forecasted, “If Powell is dismissed, the dollar’s value could plunge by 3–4% within 24 hours and U.S. Treasury yields could rise by 0.3–0.4% points.”

New York = Shinyoung Park, Correspondent nyusos@hankyung.com