Kevin Hassett, NEC Chairman, on ABC Interview
"Fed Building Renovation Costs Under Investigation... Powell Could Be Dismissed If There Is Cause"
Deutsche Bank: "Immediate Sell-Off of US Dollar and Treasuries If Powell Is Ousted"
On Tariff Letter Negotiation Question: "Tariffs Will Be Imposed on August 1"
Kevin Hassett, Chairman of the White House National Economic Council (NEC), has suggested that Federal Reserve (Fed) Chair Jerome Powell could be dismissed depending on the outcome of an investigation into excessive spending on the Fed headquarters renovation. On Wall Street, there are warnings that if the White House proceeds with Powell's dismissal, a market shock will be unavoidable, including a sell-off of US dollars and Treasury bonds. Hassett also warned that countries failing to reach a trade agreement by August 1 will be subject to high tariffs.
Hassett: "Fed Building Renovation Costs Under Investigation... Powell Could Be Dismissed If There Is Cause"
On the 13th (local time), appearing on ABC's "This Week," Hassett was asked whether Powell could be dismissed over the Fed headquarters renovation budget overruns recently raised by the White House. He responded, "Whether the President will go down that path depends largely on Powell's response to the questions Russell Vought (White House Office of Management and Budget Director) sent to the Fed." He added, "An investigation is currently underway, and if there is cause, he (the President) will do it," indicating that Powell's dismissal could follow the results of the investigation.
Previously, on the 10th, Director Vought sent a letter to Powell demanding an explanation, stating that the Fed had spent $2.5 billion on the headquarters renovation?$700 million more than the original budget. There is criticism that the White House is ramping up pressure to remove Powell after he refused President Trump's repeated calls for rate cuts, citing concerns about tariff-induced inflation. Powell's term runs until May 2026.
Coincidentally, Hassett, who mentioned the possibility of Powell's dismissal, is being discussed as a candidate for the next Fed Chair, along with former Fed Governor Kevin Warsh.
Wall Street is expressing concern that the White House's overt attempts to undermine Powell could lead to an underestimation of the shock to financial markets if the central bank's independence is compromised. There are predictions that Powell's dismissal could trigger market turmoil, including a weaker US dollar and a sell-off in Treasuries.
George Saravelos, a strategist at Deutsche Bank AG, warned, "If President Trump forcibly removes Powell, the trade-weighted dollar could plunge by at least 3-4% within 24 hours, and bond yields could surge by 30-40 basis points (1bp=0.01 percentage point) due to Treasury selling." He added, "Both the dollar and Treasuries would carry a persistent risk premium."
"Tariff Letters Not a Negotiating Tactic... High Tariffs Will Be Imposed on August 1"
Hassett emphasized that the tariff letters President Trump sent last week to major trading partners, including South Korea, are not merely a negotiating tactic and that high tariffs could actually be imposed. When asked if the tariff letters were a negotiation strategy, he replied, "If the President does not see a sufficiently good agreement, tariffs will indeed be imposed." He added, "Talks are ongoing, and we will see what happens going forward."
Regarding President Trump's recent announcement of new tariff rates on the European Union (EU), Mexico, and Canada, Hassett explained, "President Trump has reviewed some of the agreements negotiated by Commerce Secretary Howard Lutnick and the trade team, and he believes the agreements need to improve."
Previously, President Trump announced reciprocal tariff rates of 30% on the EU and Mexico and 35% on Canada, stating that these would take effect from August 1.
Regarding the imposition of a 50% reciprocal tariff on Brazil, Hassett said, "The President is very dissatisfied with negotiations and Brazil's actions," adding, "He has complaints about Bolsonaro." On the 9th, President Trump notified Brazil that tariffs would be raised from 10% to 50%, and he demanded that the trial of his close ally, former President Jair Bolsonaro, be halted, sparking controversy over interference in Brazil's internal affairs. There is criticism that tariffs are being used not only as a tool to reduce the trade deficit but also as a means of political pressure.
Hassett also claimed, in relation to the 50% item-specific tariff on copper, that "countries and people who have persistently dumped goods in the US will bear most of the cost," and asserted that costs for American companies would not increase.
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