If Federal Reserve Chair Jerome Powell is forced from his job, it would spell trouble for the financial markets, according to Charles Schwab's Liz Ann Sonders.
Sonders, Schwab's chief investment strategist, also described current economic and market circumstances as “a really, really tricky time because we're so at the mercy of policy decisions that are just coming rapid fire on a day-to-day basis."
Spearing on CNBC’s “Closing Bell" on Thursday, Sonders noted, “I'm often asked, ‘What are some of the big risks that maybe fewer people are talking about that you think would cause trouble for the market via confidence crisis or otherwise?’ And my answer has always been — any serious threat to the independence of the Fed. Now we're potentially facing that head on. I think it would be unquestionably a negative and a backdrop where we already have a lot of uncertainty."
President Donald Trump criticized Powell on social media Thursday, prodding him to lower interest rates and saying that his “termination cannot come fast enough!” The Wall Street Journal reported Thursday that Trump has talked to Kevin Warsh, a former Fed governor, about potentially stepping into Powell’s position but that Warsh has cautioned against firing the Fed chair.
Trump's threats to remove Powell come despite the Fed's establishment as a largely independent organzation to be insulated from political pressure.
Sonders noted that Trump, who in his first term appointed Powell, reportedly has received inside resistance to replacing him.
“Not only has there been reporting that Treasury Secretary Bessent has pushed back on the president about potentially trying to fire — and we don't even know whether he could even do that — but there's also some reporting that maybe Kevin Warsh also imparted that message to the president. So maybe we can find some hope in some of the pushback that's happening," Sonders said.
Marketplace uncertainty recently caused Schwab to bring its sector recommendations to neutral, she noted, adding that the last time the giant brokerage did this was early in the pandemic, when companies were withdrawing their financial guidance.
Sonders expects that an absence of guidance will be the story of the second-quarter earnings reporting season.
As for what might happen with U.S. trade policy, tax cuts and deregulation, “I’m not making any assumptions in this environment. I think that that makes absolutely no sense. We see on a day to day basis that the headlines can really cause things to swing on a dime, and I wouldn't attempt to get inside the minds of either the administration or some of the trading partners that are coming to the table,” she said.
There have been different messages on the ultimate goal in current U.S. tariff policy, “and therefore begs a lot of questions about, OK, what could the deals represent? What could those concessions? I don't know that answer to that any better than anybody else. Which is why the best thing you can do is look inward and say, ‘Alright, am I comfortable with ongoing risk in this portion of the portfolio?’ And if the answer is no, then there's probably things you can do from an asset allocation perspective,” Sonders said.
She cited Schwab’s longstanding factors approach in which investors pick companies with characteristics such as high quality and low volatility, to navigate a highly volatile equity market. Schwab has been trying to reinforce the importance of diversification across and within asset classes, including global stocks, she noted.
Times like this can make investors aware “if their emotional risk tolerance and their financial risk tolerance have a yawning gap between them. And it's unfortunate that sometimes it's a volatile period that brings that to light. And that's just the best way to help investors navigate through this, is actually saying, ‘What is your plan here? What is your financial risk tolerance? What is your long term strategy?’” and from that work on what asset allocation makes sense, Sonders said.
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