The Feud For The Fed… And How It’s Hitting The Bond Market 7/16/25

0:02Live from the Nasdaq market site in the heart of New York City's Times Square.

0:17This is Fast momentum last night, but facing another setback today. What it'll mean for the industry as Bitcoin trades near record highs. Plus, we're watching shares of United Airlines after its latest earnings report. Johnson & Johnson gets a jolt as Q2 results meet expectations. And we're counting down to Netflix's report tomorrow afternoon, how the options market is setting up ahead of those results. I'm Courtney Reagan. And this evening for Melissa Lee, coming to you live from Studio B at the Nasdaq. On the dust tonight, we have Tim Seymour, Karen Fireman, Steve Grasso, and Guy Adami. And we start with a growing feud over the Fed that sent ripples through markets today.

0:57Stocks dropping midday on reports that President Trump could try to fire Fed Chair Jerome Powell quote very soon. But then staging a turnaround after the president walked back plans to pull the trigger for now. Treasury's firmer on the back of that news with the two and 10 year yields both moving lower and the dollar also weakening slightly. For more on where things stand between the White House and the central bank, let's bring in Megan Costella. What a day, huh, Megan? Quite a big day, Courtney. The latest escalation here, as you said, in this long-running feud. But what the president said today is that he's not currently planning to fire the Fed chair.

1:34But he did say he's very concerned about him. And he confirmed that he joked about the idea with Republican lawmakers last night, and he's not closing the door entirely. Here's how he put it. I'm completely ruling out the idea of firing Jerome Powell. I don't rule out anything, but I think it's highly unlikely, unless he has to leave fraud. I mean, it's possible there's fraud involved with the 2.5, 2.7 billion dollar renovation. leaving some wiggle room there while raising the idea that fraud in the ongoing renovation of the Fed building could be enough. This was first approved eight years ago and that it could be enough to be probable cause for firing him.

2:19So those comments came after a senior White House official told me that the president had indicated he was likely to fire Powell sometime soon, although the official cautioned that no final decisions had been made at this point. So the The biggest questions as of now, whether Trump, of course, will actually do this and if he legally can. Now, that would become a question for the judicial system and for the Senate. And I'll note that some key Senate Republicans today have made clear they do not believe the president would have the legal authority to do this. And I'll remind our viewers, that's a stance long shared by Powell himself.

2:52Courtney. Megan, thank you so much. You followed all the twists and turns for us today and got us up to speed with where we are. I mean, what a day. Grasso, I'm just going to start right there. Do you think that this I know we're not all policy experts here, but was this at all sort of strategic and attempt to like lob out the idea, see how markets reacted and then take it from there? He's done that before. I think he is good at doing that. That's part of his strategy. I don't think that he the term is up in May 2026. So I don't think he would waste that. And then Philip Jefferson would take over.

3:27And Philip Jefferson was appointed as the co-chair, as the vice chair by Biden. So he's not going to get the wanted result. If he can't get the wanted result, why do it? So I think he is just floating it out there. The Supreme Court said he can't do it. So why? I don't think I think this is all adieu about nothing, much adieu about nothing. And I think if we did get a sell off, that would be the greatest buying opportunity of the last couple of weeks. I don't even think we'd get a sell off. I think the market has moved past this debate between Powell and Trump. And the Fed policy is tight. The Fed says they're tight.

4:11So if you look at the two year yield, it's three point nine. Look at the Fed funds rate. It's four point three. They're tight. They should cut at least once. the rest of the central banks around the world, the four top central banks were the highest, right? The ECB is at two. China is at three. Japan raised rates for the first time in 17 years from a quarter point to a half a point. We are at 4.3. We are tight. What does the rest of the world's interest rates mean? This is a global world, and it's a competitive world, and money flows to the most accommodative spot. That's why. We don't have the same economy.

4:50We don't have the same inflation rates. We don't have the same. I mean, I hear what you're saying. I think the more important point is that what is 25 basis points going to do? And I think the more important point is what is the next Fed chair going to be? Whether whether because I actually do think that if he was fired, it's a big deal. And I do think it would be more than just a why bother. Equities could shrug. I think markets could shrug. But I think the longer term impact is whoever's the new Fed chair and whether he's fired or not is going to cut rates aggressively. And they're going to try yield curve control and they're going to try to control the long end until they can't.

5:20And I think that's really the biggest risk. The biggest risk is not the short end of the curve. The biggest risk is what happens at the long end of the curve. And that probably is not determined for six to 12 months or more. So I think there's been a lot of noise. I think Trump's probably happy that there's a lot of noise. And my guess is there's there's just not a whole lot that really can be done in the near term. If you're a Fed president that Trump puts in or not. Yeah, they're going to cut. It's not going to make a big difference. Karen, in the beginning, we did see markets move, maybe not markedly, but we saw a move down when we got those initial headlines.

5:55And then we sort of evened back out. So the markets did seem to care to a degree on even the rumor. Yes, they cared to a degree. But I don't think you could look at this as a true trial balloon when we had the trial balloon of the tariffs. OK. Right. And we saw the markets violent reaction to that and then the walk back. And so everyone would look at this and think, all right, well, he's just testing. And, you know, so we didn't really get a true look, I don't think, of how the markets react. I agree with Tim that if he indeed were to try to do this, the markets would react much more dramatically than what we saw today.

6:29I do agree with you. The Fed probably should cut. But I don't think it's great politics at all. If you look, go back to Reagan, who had a Fed, you know, chair who was as aggressive as we have ever seen in the history of the United States. He wasn't happy with it. But, you know, I don't love the out there calling him a moron and, you know, idiot and all that. I don't think that's that's helpful. But one thing about, you know, we talk about this administration as crypto friendly. If you want to see a crypto friendly administration, fire the Fed, fire the chair of the Fed and you will get crypto moving for sure.

7:03I think part of that has been in the crypto move. Oh, yeah. You think that's part of the I do. I do. I've thought that for a little while. Yeah, that's interesting stuff. Yeah. Are you familiar with you've been to Paris? I have. It's a great place. Notre Dame, you've been there. Yeah. Nice rebuild on Notre Dame. As previously discussed, I love cheese. A nice rebuild. Nice rebuild. That's a pretty big job. Kind of like what the Yanks have done in the Bronx. How much do you think that rebuild fell down, got burned down? I understand. Plus less than a billion dollars. Why do I bring it up? Apparently the president is saying that this Fed chair spent over$2 billion.

7:36I just heard Megan say this. Oh, right, right, right, right, right. Which is virtually impossible, number one. But he's floating it out there because I do believe he's trying to come up with some reason. The only way they can be fired is for cause. And in his mind, in this administration mind, that would be the cause. I do actually think he's going to give it a shot. And I think it's going to happen. Give it a shot. Try to fire him over the weekend. And, you know, he's going to wait until Friday or Saturday because that's typically when people wait for these things. Danny Moses calls them the Friday night dirties.

8:04And I think there's a real possibility of that happening. I don't think it's particularly bullish. And I will say this, the dollar today didn't think it was particularly bullish either, because although the bond market recovered, there is still considerable pressure on the U.S. dollar, which, by the way, may be the goal in the first place, because when you're in a$37 trillion hole sitting on top of a$27 trillion economy, you're not going to grow your way out. You're going to sort of devalue your currency your way out. Nobody knows more about this, of course, than Steve Leisman. So for more on the Fed and Powell's path forward, let's bring him in.

8:35I mean, Steve, what a day. Thank you for being here with us. I think you had other plans today that didn't include working, but we do appreciate you being here. What can you tell us? Well, I'm really worried that Karen Feinerman is right, because I was, first of all, concerned that Grasso actually thought there was a strategy here. And I was trying to think, well, what is the strategy of waving a letter and then having it go away? Maybe it's just to show, to see what the market reaction will be. But if the strategy here is to pump up crypto, that's the most dangerous strategy I could possibly think of, because I think Tim Seymour has it right.

9:11The dollar is really in danger here if we're going to go from an independent Federal Reserve Bank to one that is a third world Federal Reserve Bank, one controlled by the president and the political sphere here, as well as the U.S. Treasury market, where I think would be in really bad shape if that were ending up to be the case. Steve, why does this feel so different? Is it because of sort of the low blows with the name calling? We've had other presidents that have not agreed with the Federal Reserve or with the chairman or chairwoman at the time. This feels markedly different. it. Well, you know, his surrogates keep trying to compare it to those things, but there is absolutely nothing like this, is all I can tell you.

9:57And I've done this for, I don't know, a couple decades now. A president can take a Fed chair behind the scenes and ask him to do X, Y, and Z. And that's happened before. And it's led, by the way, the behind the scenes stuff to terrible policy. But you cannot find any analog of any president ever making these kinds of public statements that the president has made. And this business about the renovation, I don't know all of the ins and outs of it. I do know, A, that the Fed has the authority over all of its real estate. I know, B, that all of this stuff was approved by various committees. And C, it would be very difficult, I think, legally, from the legal experts I'm talking to, to pin this on Powell as the for cause he would need to fire him as a governor.

10:44So those are three really high hurdles, I think, to get by. But the general, the gist of this, Courtney, that I'm hearing is that this is all just pretext for a president who wants to lower interest rates to make it so that the, I don't know, somebody said to me it's to distract from Epstein. Another person said it's to distract from the deficit out there. But it's all pretext out there. There's this stuff about the building renovation. And it's just hard to find any kind of analog for this among any president. So it does It feels different, Courtney, I think, because it is very, very different.

11:22Steve, it's Karen. Thanks for being on. You're probably wearing shorts and flip flops below the desk. So thanks for taking time for your vacation. But I'm wondering if there is a new Fed chair, what would be the mechanism to get rid of the other members of the Fed? Because they could all still vote and potentially still keep the policy consistent with what we have currently. it. So that's a really good question. I do not believe the president has any authority to get rid of any of the bank presidents. And the rotation of the bank presidents, I think, is according to Federal Reserve policy, its own internal policies for how those bank presidents end up having a vote.

12:02The governors are serving according to their terms. Adriana Kugler, I believe her term is up in January. So the president will get a slot there. I think that Powell's term as a governor runs through 2028. So they could actually, I'm not sure how they would do this. I've been back and forth with a lot of legal experts. It'd be very difficult for them to fire him as chair, but they could demote him, make him just a governor, but he could still serve, which would mean that it'd have to come from the Kugler position, the new chair, as I understand it. So he would, you're right. The FOMC, the committee does not have to go along.

12:37And by the way, while Powell, sorry, while the president points the finger at Powell, his committee has been virtually unanimous in terms of where policy is right now. And they've been pretty clear about where it ought to go. And I will point out maybe something that's not been part of the conversation, which is you do see tariffs showing up in the inflation numbers. But the inflation numbers have generally been relatively tame. And I think there's a terrific irony here if that was because of what Fed Chair Powell and the committee are doing in terms of policy, which is keeping a lid on inflation.

13:15I want to point out, everybody should go read a January 2025 op-ed by Kevin Walsh, who was one of the people who was elevated as a possible replacement for Powell. Walsh said at that time that it is the responsibility of the Fed to make sure that tariff inflation does not become widespread inflation. And almost word for word, Powell has repeated that at several of his press conferences and in several speeches that we are looking out to make sure it does not become a worse problem. So here is Powell essentially, ironically, I would say, following the very same advice from one of the people that Trump wants to pick to take the job.

14:02Oh, this is very confusing in a lot of ways. Thank you so much. Right. I mean, for boiling down. What are you trying to accomplish? I'm not sure getting rid of him does that. But here we are. Steve Leisman. Thank you so much. Our next guest says President Trump firing Jerome Powell is, quote, a terrible idea that would only have negative long term consequences. Loretta Mester is the former president of the Cleveland Fed and a CNBC contributor, someone that knows an awful lot about the inner workings of all of this. We're lucky to have you here. Thank you so much, Ms. Mester. I guess just to get started, what was your general take on how today's events played out and what you think should or should not happen?

14:40Well, it's just another comment from the president about J-PAL, unfortunately. And I think the vitriol has gotten ratcheted up under this president. I agree with Steve Leisman that You can point to past episodes where presidents have expressed their views about monetary policy and in most cases wanting lower interest rates. And in particular, it seems to happen before elections, which you'd expect. But we haven't seen this kind of vitriol. And we haven't, as far as I know, really gotten to public remarks about firing the chair of the Fed. I do believe that would be a terrible idea. And, you know, even putting myself in the administration's, you know, shoes, I don't see how it helps them at all.

15:31It certainly would not be a pro-growth strategy. strategy. It certainly would not necessarily, even if you get a chair in there who will lower short-term rates, it wouldn't necessarily lower long-term rates, which I know that President Trump and his Treasury Secretary have been focusing on because those do influence the economy. I think long-term rates could go up in response as those longer bond yields incorporate higher inflation expectations and concern about lack of independence in monetary policy going forward, which means a higher risk premium for inflation in those bond yields. So I don't see how this can help in any way with the president's own agenda.

16:18And I think it would be terrible for the institution of the Federal Reserve. You know, we know from other countries and from a lot of research, whether you're an advanced economy or an emerging market economy, when the central bank is not able to set independent monetary policy, you end up with worse economic outcomes. And when the central bank can set an independent monetary policy, meaning one that is not influenced by short-run political concerns, you end up with lower, more stable inflation, and you don't have a cost because it turns out you don't get more volatile growth because of that lower inflation.

17:00So in all cases, you end up with better outcomes when you have an independent central bank. And I should say that independent monetary policymaking does not mean a monetary policy committee that is unaccountable for its decisions. And I think Jay Powell has done his best to make sure that he is communicating the rationale for policy. He is talking to Congress. He is putting out reports on the economy. And so I think that is the accountability. And, you know, anybody can disagree with the policy perspectives of the Fed, and that's legitimate. And different people, even people on the Fed, have different views about policy in any particular meeting.

17:47But I don't think it's helpful to have a president go after the Fed chair in a way that undermines the stability of the committee and therefore the stability of the U.S. economy. You know, we dig having you on here. I speak for everybody, but I'll ask you the following question, because when you're in a$37 trillion hole sitting on top of a$27 trillion economy, you're not going to grow your way out of that. You're going to devalue your currency your way out of that. And my sense is, I mean, that's sort of the plan all along, whether they acknowledge it or not. How closely are you watching this weakness in the dollar, which has been significant over the last six months or so?

18:23Well, I think you're pointing out one of the reasons that you want to have an independent central bank, meaning one that sets policy to fulfill the goals that Congress gave it, rather than one that will inappropriately lower interest rates, either to lower the cost of financing, which President Trump did say out loud. He has said that one of the reasons he wants lower interest rates is to lower the cost of financing the economy. And that is a very dangerous place to be. Devaluing the government debt is not going to help this economy. It's going to basically push things down the road and we're going to lose the great position we have relative to other countries.

19:06We're going to undermine the value of the U.S. And you're going to see the dollar depreciate, as you point out, and you're going to see less demand for longer term U.S. government debt because of this. Loretta Messer, thank you so much for making some time for us today. I'm sure your phone has been ringing off the hook. We appreciate getting your perspective, as always. Mr. Grasso. I go back to where I started this whole thing. First of all, I think every Fed chair is a political person. They're appointed by the president and they're approved by the Senate. Inherently, because you have to be. You're appointed by the president.

19:46So you're you're not. So Trump appointed him in 2016. Biden kept him on while he was president. So now Trump wants his own Fed chair. I totally get it. But for all of us to make believe it's not a political position, It is a political position, right? They have to meet with the Senate constantly throughout the year so they hear everyone's opinion. And by the way, Elizabeth Warren wants lower rates. Every president in the history of our country wanted lower rates. So this is all, I don't agree with calling names, but at the end of the day, I think rates should be lower. And that's where I stand.

20:27So it doesn't matter all the bluster. It matters what the end game is. rates will eventually, sooner rather than later, be coming down. Well, I mean, the Fed's mandate, again, it gets back to it's about full employment and an inflation bogey. And these are things that really have to be seen as independent from politics because we know the job market's entirely political. And we know that the politics related to where people have jobs, what parts of the country they have jobs in, what sectors they have jobs in. And we know inflation on some level ultimately is political as well. So, I mean, I just it's really nice to hear Loretta Mester point out the the the sanctity of the institution, because the sanctity of the institution is someone that's worked in emerging markets.

21:04What do you think was going on back in April when our bond market, our dollar and our equities were all going down in the straight line? It wasn't because suddenly we were that worried about the U.S. going into a recession. We were worried about structural dynamics and a change to the United States. So, look, I hope it's all just a big test. I mean, the reality is, again, we have a deficit issue under every president we've had for the last five. But this is this is bipartisan. A lot of blame to go around. I'm saying that clearly. I want that to to be heard. But I think this is a case where the Fed has to be the arbiter of independence.

21:36We're going to have to drop it here, but we will pick it back up because coming up, we have shares of United Airlines losing altitude. We have to talk about that after its earnings report. The details from that quarter. Plus, don't go anywhere. Fast money is back in two. We got a lot more to talk about.

21:54And there's like fake teeth. Welcome back to Fast Money. We've got an earnings alert on United Airlines. The stock dipping after reporting mixed results. CNBC's Phil Lebeau has the details on this quarter. Hi, Phil. Hi, Courtney. United beat the street. That's about the only good news that you're going to get out of the second quarter. They came in earning, what,$3.87 a share. The street was at$3.81. Revenue a little shy of expectations. That's not the reason the stock's under pressure. It's under pressure because when you look at the performance in the second quarter, premium revenue, despite being up 5.6%, could not offset the fact that domestic revenue was down 0.7%.

22:31Pre-tax margin of 11%, that compared to 11.6 % Q2 of last year. And when you look at what's putting pressure on the margin, it's all about Newark. In fact, the pre-tax margin was 1.2 % lower in Q2 than it would have been were it not for all the problems at Newark. Essentially, Newark was a 1.2 % margin hit in the second quarter as they had to cut all those flights. They had the delays. Everybody knows about the mess that was at Newark and has limited operations since then. And that carries over into Q3 where the margin hit will be about 0.9%. At least that's the estimate from United at this point.

23:12The other reason the stock's under pressure, take a look at the guidance from the company. In the third quarter, it expects to earn between$225 and$275 a share. The street's at$260. But it's the full year guidance. And this is important to keep in mind. The guidance is for$9 to$11. The street's at$10.04. Regardless of what the street's expecting, United back in April said, we're going to give you two, issue two guidances, if you will. $7 to$9 in a recessionary environment. Those are the words that United use. 11.50 to 13.50 in a stable environment. We're getting 9 to 11. Clearly, United is feeling the impact of the issues at Newark in the second quarter.

23:57That's where the biggest impact was. But that's carrying on, guys. The flight caps are still in place there. And this is their third busiest hub in the United States. So we're going to be talking with Scott Kirby tomorrow morning on Squawk Box. First on CNBC. You do not want to miss what he has to say. Yes, we'll talk about the state of the consumer. But clearly, plenty of questions about the impact of Newark on the bottom line. Certainly, Phil, we look forward to that. That's going to be a great interview. Thank you for that information going through the quarter. Tim, I know we talked recently, I think, after Delta, you said airlines are great trades.

24:28I like I like airlines here. I like Delta more than than United. I'm sure I've said that. And I think the story with United, I'm less concerned about what's going on in Newark. And in fact, the beat that they reported when you add back in, if Newark hadn't happened, I thought it was a pretty solid quarter. But the guide is, as Phil says, there's no hiding from a guide, which isn't a great guide. And again, the reduction in TRASM guide, you know what that stands for? Well, you're going to fill me in. Yeah, it's because we have to on this show. We don't like to put too much financial jargon, but that's total revenue per available seat miles.