• Elon Musk has set off alarm bells for some investors by signaling his support for eroding the Fed’s independence.
• There’s little appetite on Wall Street to undermine the central bank or oust Jerome Powell.
• Industry experts told BI that despite Musk’s influence, markets are adjusting to Trump’s actions with the Fed.

The federal official tasked with reducing inflation is in the crosshairs of the world’s richest man — and Wall Street not happy.

Billionaire Elon Musk on Friday approved A proposal to allow the president controlling the Federal ReserveIt is led by Chairman Jerome Powell. The Fed’s mission is to maintain the stability of the U.S. economy, and giving the commander in chief control of that economy would erode the Fed’s independence from politics.

The president-elect’s allies are preparing a playbook for how he could restructure the Fed and oust Powell before his term ends. Wall Street Magazine reported. While Musk has backed the idea, some Wall Streeters are nervous about the once-remote possibility. DealBook reported.

“He seems like someone who has the president’s ear,” Mark Spindel, an investment manager who wrote a history of the Fed’s independence, told Business Insider of Musk’s influence. “But from a more cinemascope perspective, I think it would be difficult to try to attribute typical normative behavior to this Trump administration.”

Many Wall Streeters worry that undermining the Fed’s independence would weaken investors’ confidence in stock and bond markets. While Trump has previously made comments seeking to influence or oust Powell, this time it could be more disruptive as the central bank is in a delicate position to continue reducing inflation while maintaining the strength of the labor market.

“There’s no question that the market in general does not like attempts by the executive or congressional branches to interfere with the Fed’s independence,” said Jeremy Siegel, a finance professor at the Wharton School of the University of Pennsylvania. BI. He said “virtually every economist” and most members of Congress value bank independence.

In a recent comment about the Fed on October 15Trump acknowledged that “there’s a question” about whether he would fire Powell, but also said, “I have every right to say I think you should go up or down a little bit,” referring to interest rates.

Trump has a history of criticizing Powell

Reporters when asked Powell last week. Asked by Trump if he would resign, the president didn’t mince words: “No.” He said presidents are “not allowed under the law” to fire the central bank governor. Powell’s term ends in May 2026.

Trump’s interest in Powell and the Fed appears to stem from his desire to have a say on interest rates. Criticisms of the Fed increased rates In October of that year, Trump took a verbal stab at the central bank amid the stock market crash, declaring: “crazy” and “out of control”.

At the time, Trump was toying with the idea of ​​firing Powell despite significant legal questions about whether he could do so. Apparently the markets hated the idea. Stocks had a terrible day The worst of the Trump presidency before the pandemic.

Trump continued to postpone the issue until 2019 and made a statement. a series of tweets In February we were calling on the “heads” at the Fed to cut “interest rates to ZERO or lower.” Central banks in Europe and Japan cut interest rates below zero when their economies were particularly weak, but Trump made the call The US economy was strong. Its aim was to weaken the US dollar, which was good for domestic exporters.

The Fed did not follow his advice. In 2018, Fed leaders began preparing a legal strategy against Trump if he followed through. The Journal reported.

Trump continued his vendetta on the campaign trail this year. In February, he announced that he would not reappoint Powell as Fed chairman. Bloomberg In July, he said he would let the president finish his term “especially if I thought he was doing the right thing.” Trump suggested at a press conference on August 8 that presidents should have a say over interest rates.

“In my case, I made a lot of money,” he said at the time. “I was very successful. And I think in many cases I had a better instinct than people who were at the Federal Reserve or the president.”

Wall Street fears undermining the Fed would upset investors and spark political backlash

Advisers with market experience who are close to Trump have warned against replacing Powell. Scott BessentTrump, one of the top candidates for Treasury Secretary, recently withdrew his proposal to appoint a “shadow” Fed chairman, according to the Journal. Peter Orszag, former Obama administration official and CEO of financial advisory firm Lazard. he told Squawk Box He said any attempt to weaken the Fed “could be destabilizing.”

Given the number of Americans who own stocks, directly or indirectly through retirement plans or other investments, the market disruption would have a broad impact and risk political backlash, Wharton’s Siegel said. Gallup It was found that as of May 2023, 61% of Americans reported owning stocks; This is an increase from previous years.

Both Siegel and Spindel predict that the markets themselves will serve as the ultimate hedge against Musk’s influence or any attempt to oust Powell and undermine the Fed. Siegel said Trump said: Highly compatible with the stock market and uses this as a barometer of his success.

“Trump values ​​the stock market and how well it works,” he told BI. “And the stock market values ​​the Fed’s independence. So if it wants the stock market to keep going up, it’s not going to interfere with the Fed’s independence.”

The Fed’s rate cuts could shield it from Trump’s scrutiny

As of now, Siegel and Spindel said, the Fed is doing what Trump wants: cutting rates. There is room for policy disputesBut both said the president-elect is less likely to go after him when the central bank is working in his favor.

Spindel compared markets to a “governor” that engineers use to slow down the train. He said it might be the only guardrail. Musk’s influencea more MAGA-friendly Republican Congress and the Supreme Court expanding the president’s executive authority.

Overall, Musk’s newfound government clout is setting off some alarm bells. Tech billionaire tried to do this influence Senate leadershipI jumped on the phone Ukrainian President Volodymyr Zelenskyyand took a leadership role new consulting department. Although Siegel doubts Trump will undermine the central bank anytime soon, he was disappointed to see Musk weighing in on macroeconomic policies he doesn’t normally discuss.

“I think that was outside the area that Trump asked him to exercise, which was about the efficiency of government operations,” Siegel said. However, he is sure of this: markets are more affected He’s better than Musk, at least for now.