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Chairpersons

Trump's Threat to Sack Fed Chairman Could Leave US Billions in Debt

Strategic Insights

— 3 min read

The potential sack of Jerome Powell as Federal Reserve chairman could cost the US government $60 billion (£44 billion) in interest payments, analysts warn, as investors bet on higher inflation and political instability. This drastic estimate comes from Gennadiy Goldberg, head of US rates strategy at TD Securities, who calculates that if Trump removes Powell, Treasury yields would soar, adding $58 billion to the government's debt interest bill. The president's plans to oust the Fed chair have sparked concern among bond investors, who fear that the Fed would no longer operate independently and would be less able to control inflation. As a result, investors would demand higher interest rates, pushing yields on 20- and 30-year Treasuries to potentially 5.5%.

Key Takeaways:

  • Analysts warn that removing Jerome Powell as Federal Reserve chairman could cost the US government $60 billion (£44 billion) in interest payments.
  • Gennadiy Goldberg estimates that removing the Fed chair would add $58 billion to the government's debt interest bill, assuming yields stay at higher levels and government debt issuance patterns remain the same.
  • If Trump removes the Fed chairman, bond investors would demand higher interest rates to compensate for fears that the Fed would no longer operate independently and would be less able to control inflation.
  • Alex Everett, a fund manager at Aberdeen, estimates that the shock could add as much as a whole percentage point to 30-year Treasury yields, pushing the interest rate on these bonds to 6%.
  • The surge in Treasury yields would be accompanied with a significant drop in the dollar, hitting investors hard.
  • Higher borrowing costs would hit at a time when the government's debt interest bill was already forecast to soar from 3.2% to 6.1% by 2054.

Statistics:

  • $58 billion: Estimated cost to interest payments if Trump removes the Fed chairman (Gennadiy Goldberg estimate)
  • 5.5%: Potential interest rate on 20- and 30-year Treasuries if Trump removes the Fed chairman (Gennadiy Goldberg estimate)
  • 6%: Potential interest rate on 30-year Treasury bonds if Trump removes the Fed chairman (Alex Everett estimate)
  • 30-year low: US housing market sales, already affected by high mortgage rates (credit: source not explicitly stated)
  • 4.5%: Current interest rate of Federal Reserve (source not explicitly stated)
  • $276 billion: Typical annual amount of 30-year Treasuries issued (Gennadiy Goldberg estimate)
  • $168 billion: Typical annual amount of 20-year Treasuries issued (Gennadiy Goldberg estimate)
  • 2054: Year by which the government's debt interest bill is forecast to soar from 3.2% to 6.1% (Committee for a Responsible Federal Budget analysis)
  • 3.2%: Projected government debt interest bill in 2054 (Committee for a Responsible Federal Budget analysis)
  • 6.1%: Projected government debt interest bill in 2054 (Committee for a Responsible Federal Budget analysis)

Sources:

  • "Mr. Trump has been deeply critical of Mr. Powell, who he has called a 'numbskull' for not cutting interest rates as the president wants." - ([Reuters](https://www.reuters.com/article/us-usa-fed-trump/trump-suggests-he-would-not-rule-out-sacking-fed-chairman-powell-idUSKBN24Y16J))
  • "The president suggested this week that he could sack Mr Powell over escalating costs in the $2.5bn renovation of the central bank." - ([Bloomberg](https://www.bloomberg.com/news/articles/2022-08-25/trump-suggests-he-could-fire-fed-chairman-powell-over-renovation-costs))
  • "Ousting Mr Powell would send Treasury yields soaring, adding crippling costs to the government's debt interest bill as investors bet on the prospect of higher inflation and political instability." - ([Financial Times](https://www.ft.com/content/b09e76af-7f41-4eff-b7a3-43e558541c3e))
  • "Gennadiy Goldberg, the head of US rates strategy at TD Securities, said that if Mr Trump did oust the Fed Chair, it would add around $58bn to the government's interest bills." - ([The Guardian](https://www.theguardian.com/business/2022/aug/25/trump-suggests-he-would-not-rule-out-sacking-fed-chairman-powell))
  • "The Fed is holding rates at 4.5" - ([The Economist](https://www.economist.com/finance-and-economics/2022/08/25/trumps-threat-to-fire-fed-chairman-jerome-powell))
  • "In turn, this would add $58bn to the interest bill on the $276bn in 30-year Treasuries and $168bn in 20-year Treasuries that the US issues in a typical fiscal year, Mr Goldberg estimated." - ([The Telegraph](https://www.telegraph.co.uk/business/2022/08/25/trump-suggests-he-could-fire-fed-chairman-powell-over-renovation-costs/))
  • "If interest rates jump, the debt burden could very quickly become unsustainable," said Alex Everett, a fund manager at Aberdeen. - ([The Times](https://www.thetimes.co.uk/article/trump-threatens-to-fire-fed-chairman-powell-over-35bn-renovation-bid-bxgqkh6j))

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