Could Trump Fire Fed Chairman Jay Powell?

It is very standard practice that the Chairman of the Federal Reserve is appointed to a 4-year term by the President of the United States.   It is also custom that in between appointments, the President refrains from commenting on Federal Reserve policy.

It has already been several months since the President defied custom by trying to jawbone Federal Reserve Chairman Jerome Powell into not raising rates.

Jerome Powell acted independently, raising the Fed Funds rate to 2.00% to 2.25% in September, while indicating that further rate moves are on the way.

Now that the stock market has begun to fall, the President is escalating his rhetoric, including telling the Fox News microphone that the Fed has “gone loco”.

This brings into question the issue of whether Trump would try to fire Powell should the stock market continue to fall precipitously.   Actually, with this President, the question is not “would he” but “could he”.

And, my analysis after reading the Federal Reserve Act of 1913 is he could.   Section 10.2 gives the President broad latitude to remove any member of the Federal Reserve “for cause”.   It states.

The members of the Board shall be ineligible during the time they are in office and for two years thereafter to hold any office, position, or employment in any member bank, except that this restriction shall not apply to a member who has served the full term for which he was appointed. Upon the expiration of the term of any appointive member of the Federal Reserve Board in office on the date of enactment of the Banking Act of 1935, the President shall fix the term of the successor to such member at not to exceed fourteen years, as designated by the President at the time of nomination, but in such manner as to provide for the expiration of the term of not more than one member in any two-year period, and thereafter each member shall hold office for a term of fourteen years from the expiration of the term of his predecessor, unless sooner removed for cause by the President. Of the persons thus appointed, 1 shall be designated by the President, by and with the advice and consent of the Senate, to serve as Chairman of the Board for a term of 4 years, and 2 shall be designated by the President, by and with the advice and consent of the Senate, to serve as Vice Chairmen of the Board, each for a term of 4 years, 1 of whom shall serve in the absence of the Chairman, as provided in the fourth undesignated paragraph of this section, and 1 of whom shall be designated Vice Chairman for Supervision.

There is a host of legislation and precedent laying out what constitutes "cause" for removal of an appointed official.   I believe that the President inherently has broad authority to do this (especially when he is unchecked on this matter, as he is now, by the legislative branch).   Precedent in the form of the 1935 case of Humphrey’s Executor v. United States would indicate that the President’s power may be limited, but it has been widely suggested that Justice Kavanaugh would provide the deciding vote in overturning that case.   Under any circumstance, there is an open issue here, and with this President that means it could happen.

I’ve stated on BestCashCow frequently and repetitively that I see little reason to buy CDs in the current environment.   That view would change quickly if Trump continues to jawbone Jay Powell and takes further action towards firing him.


Interest Rates Rise: What it Means for CDs

Rate information contained on this page may have changed. Please find latest cd rates.

Over the last two days, we have seen the 10 and the 30-Year US Treasury rates move higher.   The financial media is saying they “spiked” but the 10-year US Treasury is now at 3.20% (from 3.00%) and the 30-year US Treasury is now at 3.45% (from 3.15%) that I don’t think represents a spike.

I have been saying for some time that we will see much higher interest rates in the US.   I first warned against all fixed-rate bond holdings in September 2017 when the 10-year US Treasury was at 2.10%, see this article).   You should to continue to avoid bonds, except those that have escalation clauses or those that otherwise produce more interest as long-term bonds rise.

Those who read the BestCashCow newsletters will note that I have strongly encouraged depositors to buy short-term CDs (one year or less) over long term CDs, and expressed a preference for savings and money market accounts over CDs.

CDs at well-recognized online banks provide not only guaranteed income over the life of the CD, but usually allow for early withdrawal with the payment of a penalty (often, the right to allow early redemption even with the payment of the penalty is retained by the bank, so we urge caution here, especially with lesser known or less financially stable names.  Learn more here. {https://www.bestcashcow.com/can-you-always-withdraw-your-money-early-from-a-cd.html}).

Even if you can get out by paying a fee, if rates are going up, you still want to avoid locking in at this time.

We think inflation is here.   We think interest rates could be dramatically higher in a year.  We are seeing savings and money market rates over 2% at banks nationally and in most local markets and at credit unions.  While 1-year CD rates at 2.65% look attractive now, we are betting that you will see savings and money market rates at or around these levels shortly.

Bottom line: Exercise caution vis-a-vis all CD purchases at this time.


TIAA Global Growth Marketsafe CD is to be Avoided

Back before TIAA acquired Everbank, the latter made a name for itself issuing CD products that were aimed at unsuspecting, ill-informed customers looking for exposure to emerging markets and/or their currencies.

I warned customers about these emerging markets-based currency products back in  2014 here and again in 2017 here and again earlier this year here.

A constant theme highlighted in my articles has been that these products are not CDs at all and that their issuance may be illegal, violating the 1933 Securities Act.  I maintain that position.

Another recurring theme is that depositors should steer clear of these products.  Those few who did not find my articles and walked into Everbank’s trap are now sitting on broken products, hoping to recover some or all of their principal at maturity and consulting tax attorneys or accountants about how to handle the Original Issue Discount forms that Everbank (now TIAA) sends them for interest they will never receive.

Yet, Everbank, now renamed TIAA Bank after its acquiror, is at it again!    The latest product looks up your hard earned money for 4 years and is virtually guaranteed to fail.   The basket of five currencies upon which it relies (the Brazilian real, Indian rupee, Chinese yuan, Mexican peso and Russian ruble) are almost certainly going to decline against the dollar over the next four years, and the only measurement date is at maturity in 4 years.   For TIAA Bank as the issuer this product is a safe way to attract long-term capital interest free from unsuspecting customers as the trajectory of emerging market currencies over a period of this length always leans towards a significant devaluation.

 I recommend anyone looking for an example of the lengths to which people will go to sell crocked financial instruments watch the video trying to sell this product.    The TIAA representative’s case for the buying instrument is based on the specious argument that “what goes down must go back up” combined with the appeal that they have done people a favor by omitting the Argentine peso and the Turkish lira from this one.

Bottom Line: All of these TIAA (previously EverBank) so-called CDs are bad, very bad.   Folks who bought EverBank’s Icelandic Krone CDs got scalped in 2008.  Even if TIAA didn’t know well enough to discontinue this program, the good news is that you now know to avoid it.

See all real 4 year CD rates here.


Think Carefully Before You Buy a Five-Year CD (For Goodness Sakes)

Rate information contained on this page may have changed. Please find latest cd rates.

Over the last two days, I have been contacted by a number of people who have asked me about 5-year CDs.  

I am not sure why this is all happening at once.  

I did learn today that TD Ameritrade is apparently pushing a 5-year brokered CD offering 3.30% which is currently higher than any online 5-year CD rates offered on BestCashCow and at least some of their brokers are directing people to compare rates on BestCashCow.   It should be noted that BestCashCow does show many local bank and credit union 5-year rates that are higher than the 3.30% TD rate.   Moreover, BestCashCow has always strongly advised against brokered CDs because they are a different animal that provides less protection to the holder and cannot be terminated with the payment of an early withdrawal penalty (and we redouble that advice here).

I also think that many people – quite correctly in hindsight – bought 5-year CDs with their cash in 2013 and are on a laddering program or some other program and feel that they soon must buy another 5-year CD.   My advice to these people is to put their programs away.   The more likely direction of interest rates at this point in the cycle is for them to increase.  The Federal Reserve and Jay Powell are pretty unequivocal.   We are in September now and the Fed funds rate is clearly going to be raised twice before the end of 2018 (to 2.25% - 2.50%).   The Federal Reserve’s most recent forecasts continue to guide towards a 3.125% Fed funds rate at the end of 2019 and a 3.375% Fed funds rate at the end of 2020.   And, there is risk to those numbers.  This Administration’s ridiculous trade “policy” could cause inflation that could drive the Fed to move by 2020 to a much higher Fed funds rate.  So, if you are going to lock in for 5 years, I think you want a significant premium over that rate and the premium just isn’t there right now.

If you must buy something to augment your current savings rate, you would be much better off looking at 1-year rates.  Several online banks are currently offering 1-year CD rates as high as 2.65%.  If inflation comes soon and interest rates spike, you could even regret those purchases.   But, the term is short and the opportunity for a significant mistake simply is not there.

See all of the best online 1-year CD rates here.

Editor’s Note:  Marcus Bank and Synchrony Bank are both advertisers on BestCashCow.   Please read our Advertiser Disclosure here


Jamie Dimon Suggests that the 10-Year Treasury Could be at 5%

I think Jamie Dimon is the smartest guy on Wall Street.   He wasn’t only the brains behind Smith Barney when Sandy Wiell made his run, he also turned around Bank One and has engineered an extraordinary turn at Chase.  Plus, he went to Tufts.

So, while there isn’t too much intelligence coming out of Wall Street, when Jamie Dimon speaks, people should listen.    We listened to him about bitcoin and we’ll listen to him again now.

According to Bloomberg, Dimon was speaking at the Aspen Institute and said that 10-year Treasury should already be at 4% and could be at 5% in the near future.

While Dimon believes that a rise in the Treasury will not immediately derail the bull market (he suggested it could run a couple years longer), it is worth analyzing what a sharp steepening of the US Treasury would do to asset prices.  

In particular, BestCashCow has already warned against bonds in our article entitled You Are About to Get Killed in Bonds.   That article was written a year ago when 10-year Treasury rates were much lower.   Given Dimon’s view, we are redoubling that advice now.

And, while we are excited that one-year CD rates are now offering a real premium over savings rates, should the yield curve steepen as Dimon predicts, you really do not want to go out further than one year.

We recommended some great savings and money market accounts in our recent savings rate update.   Savings and money market accounts are as short as you can possible be on the yield curve.   If the 10-year Treasury were to quickly move to 5%, you will be glad to be concentrated there.


Avoid the 3.10% 3-Year CD that TD Ameritrade is Hawking

Rate information contained on this page may have changed. Please find latest cd rates.

TD Ameritrade sent out an email today to their clients trying to sell a callable CD with an October 2021 maturity that is yielding 3.10% APY.   The term of the CD is actually three years and three months.

Some BestCashCow users contacted me about it today; one even said it looks like a “no brainer”.  While the product may seem attractive at first glance, it should be avoided.  

Here is why:

  1. You Lose If Interest Rates Go Down.  The CD is callable by the issuer one-year after its issuance and then every three months.   While I think it unlikely that interest rates will go down over the next three years, there are people who do, and if they do, this thing will be called away from you.  That doesn't happen with a regular CD (non-brokered CD).
  2. You Lose If Interest Rates Go Up (or if you need liquidity).  If interest rates continue on their trajectory, and as guided by the Fed, they are going to be much higher in one year.  And, while there is a “market” for brokered CDs, you’ll be selling this at a huge loss if you want to take advantage of higher interest rates (or if you need liquidity).

A rising interest rate environment is not the time to be chasing yield, especially by locking up your money for long periods.   If you want to chase yield here, consider online one-year CDs or online two-year CDs.  You may find better local rates on one-year or two-year CDs.

The only brokered CDs that we have seen recently that are at interesting are Morgan Stanley’s 6 month 2.20% CDs and, for the reasons discussed here, we’d also avoid those.