Powell Should Resign to Save the Fed, Mohamed El-Erian Says. Anxiety Is Building.

Mohamed El-Erian became one of the first mainstream voices to call for Federal Reserve Chair Jerome Powell’s resignation. (BRENDAN SMIALOWSKI/AFP via Getty Images)

Besieged Federal Reserve Chair Jerome Powell should resign,
Mohamed El-Erian, the former CEO of Pimco CEO, tweeted on Tuesday, becoming one of the first mainstream market commentators to do so.

The comments from El-Erian, now the president of Queens’ College at Cambridge University, come as anxiety is building among market participants over the Trump administration’s escalating attacks on the Fed. The criticisms have spread to areas beyond the Fed’s rate-setting decisions, threatening to destabilize an institution at the center of economic policymaking.

“If Chair Powell’s objective is to safeguard the Fed’s operational autonomy (which I deem vital), then he should resign,” El-Erian posted.

El-Erian elaborated on his comments in a speech Tuesday morning for a group of development economists in Washington. He noted attacks by the president and his allies on the Fed’s renovation and a recent call by Treasury Secretary Scott Bessent to review the Fed’s operations.

“If it continues, it will suck in more and more elements of the Fed,” El-Erian said in the speech. “The more that continues, the bigger the threats to the political independence of a critical institution. If [Powell] steps down now, there may be a chance to redirect that.”

It would be ideal for Powell to be able to do his job without interference, El-Erian said. But since Trump won’t back off his attacks, El-Erian asked, “What is the second best? Is it [Powell] staying as a lame duck and exposing the institution to more and more attacks? Or is he stepping down?”

But were Powell to step down, it may only encourage the president to attempt to exercise greater control of the Fed, said Alan Blinder, a former vice chair of the Fed’s board of governors.

“I couldn’t disagree more” with El-Erian, Blinder said. “You’re opening the door to bad things.”

The markets may begin to price in higher long-run inflation if investors believe the Fed has started take politics into account in its rate decisions. Treasury break-evens, an indicator of investors’ inflation expectations, have risen since the beginning of July amid administration attacks on Powell and signs that inflation may not be fully quelled.

Stocks showed little sign of a meaningful reaction to the latest disputes over the Fed. The S&P 500 was trading down 0.2% at midday Tuesday, while the Dow Jones Industrial Average was flat.

El-Erian is an influential market commentator. He was the chief executive and co-chief investment officer of bond giant Pimco from 2007-2014 and rose to national prominence during the 2007-2008 financial crisis. He is now chief investment advisor at Allianz, Pimco’s parent company.

The Federal Reserve declined to comment on El-Erian’s remarks. Powell has said repeatedly he intends to serve out his term as chair, which ends in May. He would be entitled to stay on the board afterward, though he has declined to address whether he will do so.

Bessent on Monday said that the Fed’s “autonomy is threatened by persistent mandate creep into areas beyond its core mission.” He called for a review of the Fed’s “non-monetary-policy operations.”

Trump and his allies have recently attacked the Fed over the cost of its $2.5 billion project to renovate its some of its Washington office space. Other criticism has focused on the Fed’s relationship with climate organizations.

The White House has not settled on a pick to replace Powell. The list of potential candidates includes National Economic Council Director Kevin Hassett, former Fed Gov. Kevin Warsh, and Bessent.

“I believe that most of the names that have been mentioned to replace him are names that would protect the independence of central bank,” El-Erian said in his remarks Tuesday.

Following El-Erian’s comments, speculation arose that he may be interested in the position of Fed chair. El-Erian didn’t respond to a request for comment.

The president appears inclined to wait Powell out. “He’ll be out pretty soon anyway, eight months,” Trump said at the White House on Tuesday.

Write to Matt Peterson at matt.peterson@dowjones.com