Stocks and bonds would likely sell off sharply if President Donald Trump makes a move to get rid of Federal Reserve Chair Jerome Powell, Evercore ISI vice president Krishna Guha said Monday. “If you start to raise questions about Federal Reserve independence, you are raising the bar for the Federal Reserve to cut. If you actually did try to remove the Federal Reserve chairman, I think you would see a severe reaction in markets with yields higher, dollars lower and equities selling off. I can’t believe that that’s what the administration is trying to achieve,” Guha told CNBC’s “Squawk Box.” The comments come after Trump criticized Powell again last week, calling for the central banker to lower interest rates. White House adviser Kevin Hassett also said that the president’s team is exploring the possibility of removing Powell from office . Trump regularly criticized the Fed during his first stint in the White House, even after he appointed Powell to the head role. The idea that Trump would try to fire Powell has been frequently speculated about, in part due to the president’s harsh public comments. When asked about this possibility last year, Powell said he doesn’t believe the president can legally remove the Fed Chair. One way the president could pressure Powell without firing him is to make it clear publicly who he plans to install as Fed Chair when the seat opens next year, allowing this “shadow Fed Chair” to indicate to markets that interest rates will be cut once Powell is gone. However, Guha said that such a move would be “not a great idea” for the White House. “It’s strongly in the administration’s interest to take a deep breath and let Fed Chair Powell run things for the remainder of his term. That’s the best shot at keeping inflation expectations well anchored, keeping bond yields well behaved, and allowing the Fed to cut without causing real problems in markets,” he added. Trump’s comments last wek appeared to be weighing on U.S. assets, with the dollar hitting its lowest level in three years on Monday.
