Latest news with #PIMCO
Yahoo
a day ago
- Business
- Yahoo
Jerome Powell must quit to save the Fed, one prominent economist says
The Federal Reserve's independence from political interference, viewed as sacrosanct inside the central bank, is under siege. President Donald Trump's relentless attacks on Federal Reserve Chair Jerome Powell are so intense that one prominent economist is raising eyebrows by arguing that Powell should quit to protect the central bank's independence. 'The attacks on Chair Powell are now extending to the whole institution. The longer Powell stays in power, the more that process will continue, fundamentally threatening the independence of the Fed,' Mohamed El-Erian, the former CEO of bond giant PIMCO, told CNN in a phone interview on Tuesday. El-Erian, elaborating on a post he made on X, acknowledged his view is outside the consensus and 'very unpopular.' But he noted that Powell will effectively become a 'lame duck' the moment Trump announces a replacement, something that could happen much earlier than in the past, and that Powell leaving now would spare the Fed from months of attacks. 'The first best is that Powell remains until May when his tenure ends and the administration stops attacking the Fed,' he said in the interview. 'But that's not going to happen. We are nowhere near the world of first bests.' El-Erian, a well-known economist who's also president of Queens' College of the University of Cambridge, added that most of the candidates who have been floated as potential replacements for Powell are 'credible' and 'respected' within the financial community. 'There will be market jitters, but ultimately the volatility will be less than the alternative, which is escalating attacks on the Fed,' El-Erian said. 'Terrible precedent' Alan Blinder, the former No. 2 official at the Fed, told CNN that he 'couldn't disagree more vehemently' with El-Erian, who he knows and respects. 'This would be like saying when you're getting bullied, the best thing to do is cave in,' Blinder said during a phone interview. 'I'd much rather see – and this is what I expect – Powell to fight this until the end.' 'If Powell steps aside, it creates a terrible precedent for the future,' said Blinder, now an economics professor at Princeton University. Ed Mills, managing director and Washington policy analyst at Raymond James, expressed a similar sentiment: 'Right now, if he were to resign, the optics would look as if Powell was forced out. It'd be terrible.' For months, Trump has slammed Powell, his handpicked Fed chairman, for refusing to slash interest rates. Trump argues that high interest rates are forcing the federal government to waste trillions of dollars to service the national debt. Washington now pays more in interest than it does to fund the military. 'I think he has done a bad job. He will be out in eight months anyway,' Trump said Tuesday at the Oval Office. 'People aren't able to buy a house because (Powell) is a numbskull and keeps the rates too high and probably doing it for political reasons.' Former and current Fed officials say the US central bank must maintain its freedom to raise and lower interest rates based on economic realities, not the whims of politicians. 'In the end, either the administration realizes that Fed independence is in its own interest, or Fed independence will need to be supported by Congress and the courts,' Bill English, a former top official at the Federal Reserve, told CNN in an email. English, now a professor at Yale University, said he doesn't 'buy the argument' from El-Erian that Powell should quit. 'If the administration wants political control over the Fed, I don't see how Powell's resignation helps avoid that,' English said. Trump official praises Powell Supporters of Fed independence point to the lessons of history, where the Fed and foreign central banks kept interest rates artificially low for political purposes – only to invite painfully high inflation. 'The Fed's credibility — its perceived willingness to make hard decisions based on data and nonpartisan analysis — is an important national asset. It is hard to acquire and easy to lose,' former Fed chairs Ben Bernanke and Janet Yellen wrote in a Monday essay in The New York Times. Even one of Trump's own Cabinet members is defending the importance of Fed independence. 'Monetary policy — we should keep that off to the side. That should be in a jewel box and protected,' Treasury Secretary Scott Bessent said Tuesday during an interview on Fox Business. While Bessent argued the Fed should review its non-monetary functions, he described Powell as a 'good public servant.' 'I know Chair Powell. There is nothing that tells me he should step down right now,' Bessent said on Tuesday. 'His term ends in May. If he wants to see that through, I think he should. If he wants to leave early, I think he should.' 'You will not see me getting in the lifeboat' The Raymond James executive added that the market reaction may be the opposite of what Trump wants. 'If Powell were to resign, rates would be more likely to go up than down,' Mills said. That's exactly what happened, briefly, last week after investors grew alarmed that Trump could be moving towards firing Powell. Those fears temporarily drove down US stocks and the value of the US dollar, while lifting bond rates. Trump later said he's 'highly unlikely' to fire Powell – 'unless he has to leave for fraud.' Yellen, who preceded Powell as Fed chair, told CNBC on Tuesday that the episode gives a 'taste' of how markets could react if Powell is fired. 'Importantly, markets rely on the independence of the Fed,' said Yellen, who served as President Biden's Treasury secretary. For his part, Powell's past comments suggest the debate over his resignation is moot. Asked about his job security in April, Powell said: 'I fully intend to serve all of my term.' 'I will never, ever, ever leave this job voluntarily until my term ends under any circumstances. None whatsoever. You will not see me getting in the lifeboat,' Powell told a Wall Street Journal reporter in a 2022 book. 'It doesn't occur to me in the slightest that there would be any situation in which I would not complete my term other than dying.' Sign in to access your portfolio
CNN
a day ago
- Business
- CNN
Jerome Powell must quit to save the Fed, one prominent economist says
The Federal Reserve's independence from political interference, viewed as sacrosanct inside the central bank, is under siege. President Donald Trump's relentless attacks on Federal Reserve Chair Jerome Powell are so intense that one prominent economist is raising eyebrows by arguing that Powell should quit to protect the central bank's independence. 'The attacks on Chair Powell are now extending to the whole institution. The longer Powell stays in power, the more that process will continue, fundamentally threatening the independence of the Fed,' Mohamed El-Erian, the former CEO of bond giant PIMCO, told CNN in a phone interview on Tuesday. El-Erian, elaborating on a post he made on X, acknowledged his view is outside the consensus and 'very unpopular.' But he noted that Powell will effectively become a 'lame duck' the moment Trump announces a replacement, something that could happen much earlier than in the past, and that Powell leaving now would spare the Fed from months of attacks. 'The first best is that Powell remains until May when his tenure ends and the administration stops attacking the Fed,' he said in the interview. 'But that's not going to happen. We are nowhere near the world of first bests.' El-Erian, a well-known economist who's also president of Queens' College of the University of Cambridge, added that most of the candidates who have been floated as potential replacements for Powell are 'credible' and 'respected' within the financial community. 'There will be market jitters, but ultimately the volatility will be less than the alternative, which is escalating attacks on the Fed,' El-Erian said. Alan Blinder, the former No. 2 official at the Fed, told CNN that he 'couldn't disagree more vehemently' with El-Erian, who he knows and respects. 'This would be like saying when you're getting bullied, the best thing to do is cave in,' Blinder said during a phone interview. 'I'd much rather see – and this is what I expect – Powell to fight this until the end.' 'If Powell steps aside, it creates a terrible precedent for the future,' said Blinder, now an economics professor at Princeton University. Ed Mills, managing director and Washington policy analyst at Raymond James, expressed a similar sentiment: 'Right now, if he were to resign, the optics would look as if Powell was forced out. It'd be terrible.' For months, Trump has slammed Powell, his handpicked Fed chairman, for refusing to slash interest rates. Trump argues that high interest rates are forcing the federal government to waste trillions of dollars to service the national debt. Washington now pays more in interest than it does to fund the military. 'I think he has done a bad job. He will be out in eight months anyway,' Trump said Tuesday at the Oval Office. 'People aren't able to buy a house because (Powell) is a numbskull and keeps the rates too high and probably doing it for political reasons.' Former and current Fed officials say the US central bank must maintain its freedom to raise and lower interest rates based on economic realities, not the whims of politicians. 'In the end, either the administration realizes that Fed independence is in its own interest, or Fed independence will need to be supported by Congress and the courts,' Bill English, a former top official at the Federal Reserve, told CNN in an email. English, now a professor at Yale University, said he doesn't 'buy the argument' from El-Erian that Powell should quit. 'If the administration wants political control over the Fed, I don't see how Powell's resignation helps avoid that,' English said. Supporters of Fed independence point to the lessons of history, where the Fed and foreign central banks kept interest rates artificially low for political purposes – only to invite painfully high inflation. 'The Fed's credibility — its perceived willingness to make hard decisions based on data and nonpartisan analysis — is an important national asset. It is hard to acquire and easy to lose,' former Fed chairs Ben Bernanke and Janet Yellen wrote in a Monday essay in The New York Times. Even one of Trump's own Cabinet members is defending the importance of Fed independence. 'Monetary policy — we should keep that off to the side. That should be in a jewel box and protected,' Treasury Secretary Scott Bessent said Tuesday during an interview on Fox Business. While Bessent argued the Fed should review its non-monetary functions, he described Powell as a 'good public servant.' 'I know Chair Powell. There is nothing that tells me he should step down right now,' Bessent said on Tuesday. 'His term ends in May. If he wants to see that through, I think he should. If he wants to leave early, I think he should.' The Raymond James executive added that the market reaction may be the opposite of what Trump wants. 'If Powell were to resign, rates would be more likely to go up than down,' Mills said. That's exactly what happened, briefly, last week after investors grew alarmed that Trump could be moving towards firing Powell. Those fears temporarily drove down US stocks and the value of the US dollar, while lifting bond rates. Trump later said he's 'highly unlikely' to fire Powell – 'unless he has to leave for fraud.' Yellen, who preceded Powell as Fed chair, told CNBC on Tuesday that the episode gives a 'taste' of how markets could react if Powell is fired. 'Importantly, markets rely on the independence of the Fed,' said Yellen, who served as President Biden's Treasury secretary. For his part, Powell's past comments suggest the debate over his resignation is moot. Asked about his job security in April, Powell said: 'I fully intend to serve all of my term.' 'I will never, ever, ever leave this job voluntarily until my term ends under any circumstances. None whatsoever. You will not see me getting in the lifeboat,' Powell told a Wall Street Journal reporter in a 2022 book. 'It doesn't occur to me in the slightest that there would be any situation in which I would not complete my term other than dying.'
CNN
a day ago
- Business
- CNN
Jerome Powell must quit to save the Fed, one prominent economist says
The Federal Reserve's independence from political interference, viewed as sacrosanct inside the central bank, is under siege. President Donald Trump's relentless attacks on Federal Reserve Chair Jerome Powell are so intense that one prominent economist is raising eyebrows by arguing that Powell should quit to protect the central bank's independence. 'The attacks on Chair Powell are now extending to the whole institution. The longer Powell stays in power, the more that process will continue, fundamentally threatening the independence of the Fed,' Mohamed El-Erian, the former CEO of bond giant PIMCO, told CNN in a phone interview on Tuesday. El-Erian, elaborating on a post he made on X, acknowledged his view is outside the consensus and 'very unpopular.' But he noted that Powell will effectively become a 'lame duck' the moment Trump announces a replacement, something that could happen much earlier than in the past, and that Powell leaving now would spare the Fed from months of attacks. 'The first best is that Powell remains until May when his tenure ends and the administration stops attacking the Fed,' he said in the interview. 'But that's not going to happen. We are nowhere near the world of first bests.' El-Erian, a well-known economist who's also president of Queens' College of the University of Cambridge, added that most of the candidates who have been floated as potential replacements for Powell are 'credible' and 'respected' within the financial community. 'There will be market jitters, but ultimately the volatility will be less than the alternative, which is escalating attacks on the Fed,' El-Erian said. Alan Blinder, the former No. 2 official at the Fed, told CNN that he 'couldn't disagree more vehemently' with El-Erian, who he knows and respects. 'This would be like saying when you're getting bullied, the best thing to do is cave in,' Blinder said during a phone interview. 'I'd much rather see – and this is what I expect – Powell to fight this until the end.' 'If Powell steps aside, it creates a terrible precedent for the future,' said Blinder, now an economics professor at Princeton University. Ed Mills, managing director and Washington policy analyst at Raymond James, expressed a similar sentiment: 'Right now, if he were to resign, the optics would look as if Powell was forced out. It'd be terrible.' For months, Trump has slammed Powell, his handpicked Fed chairman, for refusing to slash interest rates. Trump argues that high interest rates are forcing the federal government to waste trillions of dollars to service the national debt. Washington now pays more in interest than it does to fund the military. 'I think he has done a bad job. He will be out in eight months anyway,' Trump said Tuesday at the Oval Office. 'People aren't able to buy a house because (Powell) is a numbskull and keeps the rates too high and probably doing it for political reasons.' Former and current Fed officials say the US central bank must maintain its freedom to raise and lower interest rates based on economic realities, not the whims of politicians. 'In the end, either the administration realizes that Fed independence is in its own interest, or Fed independence will need to be supported by Congress and the courts,' Bill English, a former top official at the Federal Reserve, told CNN in an email. English, now a professor at Yale University, said he doesn't 'buy the argument' from El-Erian that Powell should quit. 'If the administration wants political control over the Fed, I don't see how Powell's resignation helps avoid that,' English said. Supporters of Fed independence point to the lessons of history, where the Fed and foreign central banks kept interest rates artificially low for political purposes – only to invite painfully high inflation. 'The Fed's credibility — its perceived willingness to make hard decisions based on data and nonpartisan analysis — is an important national asset. It is hard to acquire and easy to lose,' former Fed chairs Ben Bernanke and Janet Yellen wrote in a Monday essay in The New York Times. Even one of Trump's own Cabinet members is defending the importance of Fed independence. 'Monetary policy — we should keep that off to the side. That should be in a jewel box and protected,' Treasury Secretary Scott Bessent said Tuesday during an interview on Fox Business. While Bessent argued the Fed should review its non-monetary functions, he described Powell as a 'good public servant.' 'I know Chair Powell. There is nothing that tells me he should step down right now,' Bessent said on Tuesday. 'His term ends in May. If he wants to see that through, I think he should. If he wants to leave early, I think he should.' The Raymond James executive added that the market reaction may be the opposite of what Trump wants. 'If Powell were to resign, rates would be more likely to go up than down,' Mills said. That's exactly what happened, briefly, last week after investors grew alarmed that Trump could be moving towards firing Powell. Those fears temporarily drove down US stocks and the value of the US dollar, while lifting bond rates. Trump later said he's 'highly unlikely' to fire Powell – 'unless he has to leave for fraud.' Yellen, who preceded Powell as Fed chair, told CNBC on Tuesday that the episode gives a 'taste' of how markets could react if Powell is fired. 'Importantly, markets rely on the independence of the Fed,' said Yellen, who served as President Biden's Treasury secretary. For his part, Powell's past comments suggest the debate over his resignation is moot. Asked about his job security in April, Powell said: 'I fully intend to serve all of my term.' 'I will never, ever, ever leave this job voluntarily until my term ends under any circumstances. None whatsoever. You will not see me getting in the lifeboat,' Powell told a Wall Street Journal reporter in a 2022 book. 'It doesn't occur to me in the slightest that there would be any situation in which I would not complete my term other than dying.'
Axios
a day ago
- Business
- Axios
Powell should resign to protect Fed, El-Erian says
Federal Reserve chair Jerome Powell should step down in order to protect Fed independence, according to Mohamed El-Erian, long one of the bond market's most respected voices. Why it matters: As the White House steps up its attacks on the head of the U.S. central bank, El-Erian said protecting the institution's independence is crucial, and that independence is at risk with Powell at the helm. What they're saying: "If your objective is to protect the independence of the central bank, then it's better that he step down than he stays and the attacks multiply," El-Erian, the former PIMCO CEO and current president of Queen's College, Cambridge, told Axios. El-Erian said this is an unusual circumstance, given that Powell's term as chair expires next May and his replacement will be announced by the end of this year, which makes him a "lame duck" anyway. While the best-case scenario is that Powell stays and there are no attacks on the Fed, El-Erian said that is "not gonna happen." Context: Treasury Secretary Scott Bessent said "what we need to do is examine the entire Federal Reserve institution" in a CNBC interview on Monday. His comment is a red flag for El-Erian, who read it as the administration ratcheting up its attacks not just on Powell, but on the central bank in its entirety. Zoom out: On Powell's record overall, El-Erian said "if he was CEO of a company, he would have lost his job," given some policy mistakes and an alleged insider trading scandal under his leadership. Powell believed that inflation would be only transitory, which made the central bank slower to raise interest rates in 2022. The banking crisis in 2023 resulted in a "damning" report. Then there were allegations of insider trading among Fed officials, which is not allowed, resulting in new rules barring senior officials from actively trading or purchasing securities. (Powell was not among those accused.) Be smart: The U.S. central bank, like any institution, needs revising, said El-Erian, who took part in a G30 report on how the central bank could improve. If threats to Fed independence continue, that would result in a weaker dollar and a steeper yield curve with higher interest rates, El-Erian said.
Forbes
4 days ago
- Business
- Forbes
Here's Why Chasing The Highest Yields Can Be The Wrong Investment
Avoid These Mistakes write on a book isolated on Office Desk. Stock market concept Think back three months: The market was in the throes of the 'tariff terror.' Us? We were doing what we always do: sifting out overly beaten down closed-end funds (CEFs) with huge yields. Today, the stock market is doing the opposite of what it was back then—levitating from all-time high to all-time high. And we're still finding bargain-priced dividends. Right now, some of the best ones are in corporate-bond CEFs. Let's keep at it now by zeroing on two corporate-bond CEFs that are still undervalued—though one much more than the other. On average, they yield north of 9%. 2 PIMCO CEFs Surge After Tariffs I mention the April tariff crash for a reason: In an April 17 article (published as trade confusion reigned), I focused on two oversold PIMCO corporate-bond funds that, at the time, yielded 10.1% between them. Those were the PIMCO Dynamic Income Strategy Fund (PDX)—currently a holding in our CEF Insider service—and the PIMCO Access Income Fund (PAXS). Since April 17, PAXS (in orange below) and PDX (in purple) have bounced, posting a nearly 12% average total return, based on their market prices. But the gains have been lopsided. PDX Outperforms We'll talk about that gap more in a second. First, let's dig into the dividends, since they're usually investors' No. 1 reason for buying CEFs. PIMCO Table If you'd bought these CEFs on April 17, you'd have gotten a 10.1% average yield. Here too, the gap was quite big between the funds, with PAXS yielding over 12% at the time. Note that these funds' average yield has fallen due to price gains (as prices and yields move in opposite directions), though PAXS's yield is still near where it was in April, at 12%. In other words, the fund's smaller market-price gains mean it still offers a lot of income. This is takeaway No. 1 in CEF investing: The higher yielder isn't always the bigger short-term winner. In fact, it's often the opposite: Many investors fear all big yields—even many CEF investors. (There's really no excuse for that, since many CEFs have offered 10%+ yields for years without major payout cuts). As a result of that fear, lower-yielding CEFs tend to bounce higher than bigger payers after a market panic. So PDX's outperformance is no surprise. But there's something else going on with these funds' net asset values (NAVs). NAV is a measure of a CEF's portfolio performance: Since CEFs have fixed share counts, their NAV and market-price performance usually differ. A market price below NAV results in the 'discount to NAV' that we CEF buyers covet. PIMCO Total Returns Over the past year, PAXS (in orange above) and PDX (in purple) have posted similar total NAV returns, with PDX edging ahead. That's not too surprising, as both funds invest in a mix of credit assets and have overlapping management teams. However, some aspects of PDX's portfolio, like a focus on energy and oversold floating-rate credit, drove its outperformance (including that spike in early 2025) at different times over the last 12 months. In the future, we can expect both funds to keep recovering, mainly because of their discounts to NAV. PIMCO Discount Both funds trade at discounts as I write this, with PDX's markdown being much bigger, at 7.1%. That makes the fund the more appealing choice between these two, even with its lower yield. I expect PDX's closing discount to result in a bigger total return than we'd get from PAXS in the long term, even if that discount is rangebound today. However, PAXS isn't a bad fund, with the market's continued gains spurring a bigger appetite for risk and income. As more investors look to CEFs, we should see more demand for those with the highest yields, and 12%-paying PAXS is nicely set up to benefit from that. PAXS's portfolio mix of leveraged-credit investments should allow its NAV to keep climbing in a rising market. That, in turn, would attract more investors and bring the fund's tiny discount to a premium. This wouldn't be unprecedented, since PAXS was trading at a double-digit premium less than a year ago. In fact, a premium is likely for both funds in the longer term, since they both operate under the PIMCO name, and PIMCO CEFs tend to trade at large premiums. There are lots of reasons for this, including the fact that investors generally don't like to sell PIMCO funds because they often do outperform, and the company aggressively courts the ultra-rich in California via wealth managers. As a result, many shares of these funds sit in accounts and aren't traded very much. In the past, in fact, I've seen premiums on PIMCO funds shoot as high as 40%! Could PAXS or PDX see that type of premium? It's possible, though it will likely take years—though these funds' current high payouts would make the wait a pleasant one. Michael Foster is the Lead Research Analyst for Contrarian Outlook. For more great income ideas, click here for our latest report 'Indestructible Income: 5 Bargain Funds with Steady 10% Dividends.' Disclosure: none
