Powell should resign to protect Fed, El-Erian says
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Federal Reserve chair Jerome Powell should step down in order to protect Fed independence, according to Mohamed El-Erian, long one of the bond market's most respected voices.
Why it matters: As the White House steps up its attacks on the head of the U.S. central bank, El-Erian said protecting the institution's independence is crucial, and that independence is at risk with Powell at the helm.
What they're saying: "If your objective is to protect the independence of the central bank, then it's better that he step down than he stays and the attacks multiply," El-Erian, the former PIMCO CEO and current president of Queen's College, Cambridge, told Axios.
- El-Erian said this is an unusual circumstance, given that Powell's term as chair expires next May and his replacement will be announced by the end of this year, which makes him a "lame duck" anyway.
- While the best-case scenario is that Powell stays and there are no attacks on the Fed, El-Erian said that is "not gonna happen."
Context: Treasury Secretary Scott Bessent said "what we need to do is examine the entire Federal Reserve institution" in a CNBC interview on Monday.
- His comment is a red flag for El-Erian, who read it as the administration ratcheting up its attacks not just on Powell, but on the central bank in its entirety.
Zoom out: On Powell's record overall, El-Erian said "if he was CEO of a company, he would have lost his job," given some policy mistakes and an alleged insider trading scandal under his leadership.
- Powell believed that inflation would be only transitory, which made the central bank slower to raise interest rates in 2022.
- The banking crisis in 2023 resulted in a "damning" report.
- Then there were allegations of insider trading among Fed officials, which is not allowed, resulting in new rules barring senior officials from actively trading or purchasing securities. (Powell was not among those accused.)
Be smart: The U.S. central bank, like any institution, needs revising, said El-Erian, who took part in a G30 report on how the central bank could improve.
- If threats to Fed independence continue, that would result in a weaker dollar and a steeper yield curve with higher interest rates, El-Erian said.
The bottom line: El-Erian argues Powell should step down to safeguard the independence of the Fed, warning that political attacks threaten not just the central bank's credibility, but market stability as well.
