President Trump said Wednesday it's "highly unlikely" that he would fire Jerome Powell, but he continued to air his frustrations with the Federal Reserve chair. CBS News MoneyWatch correspondent Kelly O'Grady has more.

Washington

President Trump has voiced dissatisfaction with Federal Reserve Chair Jerome Powell, criticizing his handling of interest rates and suggesting that some lawmakers support Powell's removal. However, Trump stated that he is not planning to take any action against Powell at this time. Republican Senator John Kennedy warned that firing Powell could lead to a crash in both the stock and bond markets, a sentiment echoed by financial experts who highlighted the importance of the Federal Reserve's independence.

Market analysts noted that even speculation about Powell's dismissal has previously caused significant market volatility, and further uncertainty could negatively impact investor confidence. The independence of the Federal Reserve is seen as crucial for maintaining economic stability, with disruptions potentially leading to higher borrowing costs for consumers and businesses.

Sen. Kennedy warns if Trump fires Powell the stock market would crash

So, as we said, mixed signals from President Donald Trump about whether he would fire Fed Chair Jerome Powell. Here's some of what he said yesterday during a meeting at the White House. Jerome Powell, if you decide that you are going to fire him, have you drafted a letter? I haven't drafted a letter. So you didn't show a letter to Republican lawmakers last night? No, I talked about the concept of firing him. I said, what do you think? Almost every one of them said I should. But I'm more conservative than they are. He should have cut interest rates a long time ago. Europe has cut them 10 times in the short period of time, and we cut them none. The only time he cut them was just before the election to try and help Kamala or Biden, whoever the hell it was, because nobody really knew. He's a terrible Fed chair. I was surprised he was appointed. I was surprised, frankly, that Biden put him in and extended him. But they did. So no, we're not planning on doing anything. Not planning on doing anything. But still, the question remains. Meanwhile, members of Congress on both sides of the aisle raising alarm about the potential dangers of firing Jerome Powell. Here's Louisiana Republican Senator John Kennedy. If you fire the chairman of the Federal Reserve, you will see the stock market crash and you will see the bond market crash. Meanwhile, the president's budget director addressed questions about Powell outside the White House earlier today. Let's let you listen to that. I think the president was pretty clear yesterday he's unlikely to fire the chairman, but he has substantial concerns with regard to how he's managed the Fed, not just from an interest rate policy, but with regard to cost overruns, and that's something I'm in particular looking at. Okay. So let's break this down. CBS News Money Watch correspondent Kelly O'Grady live in New York. Kelly, a clear cause and effect, right, voiced by the Senator Kennedy. You're going to see the stock market crash, she says. You'll see the bond market crash. How well informed is that comment from an economic standpoint? It's pretty well informed. I would expect if the president went forward with such an action, you would see investors react viscerally. I'll recall that day back in April when we were talking about the same thing and you saw the market, I mean the stock market, had a big route across those major indexes. And the reason being is we've heard from JPMorgan Chase CEO Jamie Dimon this week, CEO of Bank of America Brian Moynihan. The list goes on that you want the Federal Reserve to be independent, the central bank to be independent. And that is because they are trying to tame inflation, ensure the job market remains at full employment, and they use interest rates to do so. And they look at data and they make those decisions independent of whatever party wants to have lower or higher interest rates. And that is really why you would see investors concerned, because if the president were to take a move, even if this got wrapped up in the courts, as it would likely do because there's just such a lack of clarity around cause and the legality of this, this would put things in such uncertainty and disarray. And you and I have talked ad nauseum, Reid, about how much investors hate uncertainty. And I will note that yesterday when CBS News broke that story, you saw the Dow dip quite significantly. And then the comments from the president in the Oval Office did seem to calm investors. But certainly they're watching, they're waiting. Investors love interest rate cuts, but not this way, Reid. Yeah, they like to see the autonomy of the Fed. You know, we know many people stop, you know, 401ks are tied to the stock market, right? But a lot of people don't really understand what the bond market is, given the fact that Senator Kennedy said the bond market would crash. What is it to the people out there who are buying milk and eggs at the grocery store? Well, if the bond market crashes, essentially what that means is that investors don't feel comfortable buying government debt. And the reason that this would make the bond market have a tantrum, if you will, is that there would be less stability, less credibility about what the U.S. economy is going. And investors might think, well, maybe the government isn't going to be able to pay its debts. Maybe there's going to be rampant inflation. And so what you would see is investors would have to get higher returns, more incentive to take on what they would perceive as a more risky asset. Remember, the bond market is traditionally a very safe asset, safe place to put your money. And the reason why I lay this out is because if you have a higher interest rate that an investor needs to get to say, yep, all right, I will put my money there, well, that means the 10-year treasury goes up. And what does that mean? That means mortgage rates go up. Because mortgage rates, auto loan rates, these are long-term interest rates. They track the long-term treasury rates. And that's a really important piece of this. And why you wouldn't want to see the equity market or the bond market have a tantrum. Okay. We know money is literally talking right now on the stock market as this continues to be in the news. Kelly O'Grady, thank you so much for helping it make sense to all of us today.

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