SOTS 2nd Hour: Trump vs. Powell - Yellen Comments, Market Takeaways, & What Comes Next 1/12/26

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Sara Eisen (1:03)

Good Monday morning. Welcome to Squawk on the Street. I'm Sara Eisen with Carl Quintanilla and David Faber, live as always from Post 9 of the New York Stock Exchange. Do have some breaking news to begin the hour for you around the DOJ's investigation into Fed Chair Powell. I did just speak with the former Federal Reserve Chair and former Treasury Secretary, Janet Yellen, about all of this and she did not hold back. Here's what she told me. As far as the investigation, she did tell me that it was very chilling for Federal Reserve independence. She clearly thinks that this is political on the part of the administration when it comes to investigating Fed Chair Powell. We talked about, here's the quote, I find it extremely chilling for Fed independent. We talked about how it appears to be that they're looking into some testimony from Fed Chair Powell before Senate Banking about the building, about everything with the cost overruns and how much the building costs and everything. So here's what the former Fed Chair Yellen did tell me. She said, knowing Powell as well as I do, the odds that he would have lied are zero. So I do believe they are going after him because they want his seat and they want him gone. She did say as far as the market reaction, I'm surprised that the market isn't concerned. It seems to me that the market should be more concerned. Talked about some of the market reaction. Yes, we're seeing a bid for gold. Yes, the dollar's a little bit weaker, but she thinks this is a real cause for concern here. And then we talked a little bit more, guys, about other ways she's concerned about Fed independence. She's really eagerly waiting to see what the Supreme Court decides on Lisa Cook, for instance. And she also referenced this notion from the president that he has said about how the Fed should be cutting rates to lower payments for the federal government. And here was the exact quote from former Fed chair Yellen. You have a president that says the Fed should be cutting rates to lower payments on the federal debt. She completely disagrees with that and says it is the road to a banana republic. She also cited with me in the conversation examples like Argentina in the past, Turkey in the past, Venezuela where the federal government basically because of mismanagement and bad fiscal policy has to rely on the central bank to monetize the debt and then you get hyperinflation. So that was in the discussion of why central bank independence is so important. And then finally on the Tillis statement, she said the Senator Tillis statement where he said that he would oppose any other nominations from this administration until this was dealt with. She was encouraged to see the Tillis statement, she said, because the fact that he was willing to do so publicly, she said, is a strong statement. And then continue to talk about how, and her word was weaponized, how she thinks that the administration is weaponizing the Department of Justice to go after people that they disagree with and how that is going to end up hurting people's ability, especially at the Fed, to disagree with the president.

Carl Quintanilla (4:01)

Yeah. Tillis, of course, not running for re-election, but he is a key Republican on Senate banking. You saw the prediction market odds of Powell staying on the committee, even after he leaves his chair, and which was reiterated by a couple of notes. Evercore said they can see him staying and that would actually be against, work against the administration's goals of achieving lower rates.

Sara Eisen (4:24)

Right. And clearly the administration, I think, wants his seat. So maybe, I mean, who knows if this is behind this? I think that's something that Janet Yellen would probably speculate. And, you know, in our conversation, what she said is, you know, Fedsher Powell has been at the Fed for a really long time, a better part of 14 years and wouldn't be surprised to actually see him maybe want to leave before this because he's put in his work as a public servant. He's done a lot. He's been through the COVID crisis, the inflation spike. But now I think there are questions about, you know, he was pretty defiant in that video message last night and whether he would continue to serve as on the board as governor because now the question is about an independent central bank and not having the president get a majority because of this threat of a criminal investigation.