Billionaire fund manager sends strong message on Fed Chair Powell's future
The veteran fund manager weighed in on the likelihood that the President will fire Jerome Powell.
The Federal Reserve is in a bind, which has put its Chairman, Jerome Powell, on the defensive.
Powell cut rates last year to shore up the jobs market, but he's since paused additional rate cuts because of uncertainty over the impact of tariffs. Many, including President Trump, think this is a big mistake, arguing that hesitation on lowering the Fed Funds Rate, a benchmark used to set rates on everything from cars to mortgages, risks stagflation or recession.
The risk that higher rates contribute to a slowing economy is real. Still, the impact of tariffs on inflation has yet to be fully felt, and cutting rates could send inflation skyrocketing, pressuring consumers and businesses further.
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Powell's decision to remain on the sidelines despite the President's comments regarding Powell's future has caught the attention of major market participants, including billionaire fund manager Ken Fisher.
Fisher is the founder of Fisher Investments, which has $295 billion in assets under management. He's been navigating the markets since the 1970s, and he’s seen his share of economic and market booms and busts.
This week, Fisher weighed in on the prospect of Powell's removal, offering a candid take on what's likely to happen to him.
Fed trapped by mandate risks falling behind curve
The Federal Reserve has a tough job. Its dual mandate is to set interest rates at levels that ensure low unemployment and inflation, two often contrasting goals.
When the Fed cuts interest rates, it fuels economic activity, creating jobs but increasing inflation. When it raises rates, it crimps GDP, lowering inflation but causing unemployment.
Related: Looming inflation data may rock interest rate cut forecasts
We've seen this relationship play out since Covid. In 2022, the Fed switched gears away from zero-interest rate policy, or ZIRP, embarking on the most hawkish pace of rate hikes since the 1980s to fight runaway inflation caused by stimulus payments.
Those rate hikes slowed inflation, driving it below 3% from above 8% in 2022, but they also caused job losses to increase. The unemployment rate has climbed to 4.2% from a low of 3.4% in 2023.
The weakening in the jobs market and confidence that inflation would continue to fall prompted the Fed to change policy again late last year, cutting rates in September, November, and December.
Many market watchers and economists expected those cuts to continue in 2025; however, that hasn't happened as inflation has proven stickier than hoped. In April, the Consumer Price Index, or CPI, was 2.3%, about in line with its 2.4% reading last September.
The risk of inflation reasserting itself worsened in February, when President Trump announced 25% tariffs on Mexico and Canada and 20% tariffs on China. It worsened even more in April when the President announced harsher-than-expected reciprocal tariffs, including a 10% baseline tariff on all imports.
While the White House has paused implementing most tariffs announced in early April, many tariffs remain in effect, including those on Canada and Mexico and a 25% tariff on autos. Meanwhile, the China tariffs, while lower than their peak, have increased to 34%, and the baseline tariff remains active.
The uncertain inflation picture is keeping Fed Chair Powell from reducing rates, even as job losses continue and signals of a weak economy mount. The ISM Manufacturing PMI, a measure of manufacturing activity, was 48.5 in May, below the 50 level associated with growth.
The Conference Board's consumer expectations index was 72.8 in April, below the 80 threshold that typically signals a forthcoming recession.
Fisher makes prediction on Trump, Powell tussle
In 2021, Fed Chair Powell infamously said inflation would prove transitory, only to reverse course in 2022 when inflation had firmly taken hold. Now, Powell risks the opposite. If Powell falls behind the curve, it could take more significant rate cuts to restore GDP growth, resulting in more economic damage than necessary.
President Trump clearly believes that's the biggest economic risk, given he's ratcheted up his rhetoric toward Powell earlier this year, referring to him as "Mr. Too-Late" and saying after last week's job reports that Powell should immediately cut the Fed Funds Rate by 1%.
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Ken Fisher says the president's desire for lower rates may reflect his understanding that tariffs could be a drag on GDP later this year.
"He [Trump] has said, repeated negative comments about Fed Chair Jerome Powell, including the notion that his term couldn't be over soon enough, making many people envision the President trying to fire him," said Fisher on X. "The more the President criticizes Powell, the more certain it is that Powell does not do what the President wants. He wants the Fed to lower interest rates at least partly to offset the drag on the economy that the tariffs the President wants will impose."
Powell is adamant about the Fed's independence. The Fed was designed to avoid the risk of bending to political will, recognizing that politicians' and lobbyists' desires aren't necessarily always aligned with what is best for the economy long term.
"The fundamental feature of the Fed almost above and beyond all others is to want and need to appear to be truly independent from political pressure... Their image of integrity is central to getting people to believe that what they're doing is not jerry rigged by politics," said Fisher.
Fisher predicts that Powell won't be successfully removed before his term expires in May 2026.
"Jerome Powell has said that he will not go softly into that good night, and... many people wonder if the President will just do it... Mind you that may well happen, a good long time after America takes over Canada and Greenland," joked Fisher.
While Fisher thinks it's possible that Trump has a change of heart and renominates Powell, it is most likely that Trump will look to nominate a "Toadie" before next May, who he believes will bend to Trump's will regarding interest rate cuts.
Fisher says Trump wants to "nominate someone he thinks will be a toadie." However, there's no guarantee that the person nominated won't change their mind once they're confirmed, and "decide for the purpose of the Fed's integrity and his own integrity, he can't do that."
Overall, Fisher's take on Fed Chair Powell's future is pretty blunt.
"The President is not going to be able to fire Jerome Powell," concluded Fisher. "Jerome Powell is going to finish out his term."
