Can the president remove a Fed governor?

Overview

This episode explores the economic and political implications of President Trump's attempt to remove Federal Reserve Governor Lisa Cook, focusing on the potential erosion of the Fed's independence and its ripple effects on markets, inflation, and global perceptions of U.S. economic stability. Additional topics include the housing market's response to high interest rates, the impact of FEMA program cuts on disaster resilience, and the fallout from China's real estate crisis.

Notable Quotes

- The more the president pushes on the Fed to cut interest rates, the more risk there is that long-term rates go up. – Sabri Benishor, on the unintended consequences of political interference.

- The Fed is really the preeminent macroeconomic policymaker in the world... There's a lot at stake here. – Sarah Binder, on the global implications of undermining the Fed's independence.

- Being greedy, then they lock their independent, critical thinking. – Glenn Ho, on the speculative frenzy that fueled China's real estate bubble.

🛑 Presidential Interference in the Federal Reserve

- President Trump’s attempt to remove Fed Governor Lisa Cook over unproven allegations of mortgage fraud raises questions about the Fed's independence.

- Sarah Binder explains that the Federal Reserve Act allows removal only for cause, such as inefficiency or neglect of duty, not policy disagreements.

- Political meddling could undermine trust in the Fed, leading to higher inflation expectations and increased long-term interest rates, as noted by Sabri Benishor and Kathy Jones.

- Globally, the Fed’s credibility as a stabilizing force in crises could be jeopardized, warns Sarah Binder.

📉 Housing Market Dynamics

- Despite high interest rates, home prices rose 2% year-over-year in June, though this lags behind inflation.

- Pandemic-era hotspots like Tampa and Phoenix are seeing price declines, while cities like New York and Chicago are experiencing growth.

- Builders are discounting inventory, and homeowners are adjusting to the reality of sustained high mortgage rates, creating opportunities for buyers, according to Nancy Vanden Houten.

🌪️ FEMA Cuts and Disaster Resilience

- The Trump administration’s proposed cuts to FEMA’s Building Resilient Infrastructure and Communities (BRIC) program could leave vulnerable areas like the Gulf Coast less prepared for disasters.

- Sarah McTarnahan highlights the high return on investment for mitigation programs, which save $6–$13 for every $1 spent.

- Local governments may struggle to fill the funding gap, especially in fiscally constrained states like Louisiana.

🏢 China's Real Estate Collapse

- Evergrande’s downfall, marked by its Hong Kong delisting, reflects the bursting of China’s real estate bubble.

- The company’s reliance on borrowing to sustain growth created a fragile system that unraveled when housing demand slowed.

- Local governments mitigated the fallout by completing unfinished homes, but housing prices have dropped 35% since 2021, dampening consumer spending and impacting the global economy.

📊 Durable Goods and Economic Trends

- Durable goods orders fell 3% in July, though core capital goods orders rose 1%, signaling cautious optimism.

- Businesses are still navigating distortions caused by tariff-induced inventory adjustments, as explained by Tom Goldsby.

- Sector-specific trends, such as strong demand for data center equipment but weaker agricultural machinery sales, highlight uneven economic recovery.