Key Takeaways
- The call for Federal Reserve Chair Jerome Powell’s removal originates not from official government bodies, but from activist investor William J. Pulte, who claims to represent the views of leadership at Fannie Mae and Freddie Mac.
- This public challenge, while not institutional, vividly illustrates the profound policy friction between the Federal Reserve’s inflation-fighting mandate and the acute stress its rate-hiking cycle has inflicted upon the US housing market.
- Data clearly shows a housing market under duress, with mortgage rates near two-decade highs severely impacting affordability and transaction volumes, forming the basis of the activist’s complaint.
- For investors, the primary risk is not Powell’s immediate dismissal but the potential for such political pressure to subtly influence the Fed’s future policy decisions, possibly leading to a premature pivot away from restrictive policy.
A recent and rather theatrical call for a congressional investigation into Federal Reserve Chair Jerome Powell, with the aim of his removal, has captured market attention. However, the origin of this demand is more nuanced than initial reports suggested. The call comes not from the Federal Housing Finance Agency (FHFA) itself, but from activist investor William J. Pulte, who asserts he is conveying the sentiment of the leadership at Fannie Mae and Freddie Mac. While this significantly reframes the event from an institutional crisis to an activist pressure campaign, it nonetheless casts a harsh light on the palpable tension between the central bank’s monetary policy and the stability of the US housing sector.
Anatomy of the Accusation
The central claim, articulated by Mr Pulte, is that Chair Powell has demonstrated bias and that his testimony before the Senate warrants removal “for cause”. Mr Pulte, the grandson of the founder of homebuilding giant PulteGroup, is leveraging his platform to voice grievances that are undoubtedly felt throughout the housing industry. He alleges that the Fed’s aggressive rate-hiking cycle is causing undue harm to the housing market, a sector critical to the broader economy. It is crucial to note that neither the FHFA, the regulator for the Government-Sponsored Enterprises (GSEs), nor the GSEs themselves have issued an official public statement echoing Pulte’s call for removal. Instead, this appears to be a calculated move to publicise the very real discord between entities focused on housing affordability and a central bank with a singular focus on taming inflation.
A Market Under Duress
The backdrop for this drama is a housing market visibly strained by the most rapid monetary tightening cycle in decades. The Federal Reserve’s actions have propelled mortgage rates to levels not seen consistently in over twenty years, directly eroding affordability for prospective buyers. This has had a predictable and significant impact on market activity, as key metrics illustrate.
| Indicator | Pre-Hike (Q4 2021) | Post-Hike Peak (Q4 2023) | Most Recent (Q2 2024) | Source |
|---|---|---|---|---|
| 30-Year Fixed Mortgage Rate | ~3.1% | ~7.8% | ~7.0% | Freddie Mac |
| Existing Home Sales (SAAR) | 6.12 million | 3.82 million | 4.14 million | National Association of Realtors |
| Housing Affordability Index | 151.2 | 91.7 | 98.5 | National Association of Realtors |
The data is unambiguous. The Housing Affordability Index from the National Association of Realtors, where a value of 100 means a median-income family has exactly enough income to qualify for a mortgage on a median-priced home, fell dramatically below that threshold. This demonstrates a clear structural stress point. While the Fed’s objective is to cool demand across the economy to rein in prices, the housing sector experiences this cooling as an existential threat.
The Perils of Politicising Monetary Policy
Beyond the immediate dispute lies a more profound risk: the erosion of central bank independence. This independence is a foundational principle of stable, modern economies, designed to insulate monetary policy from short-term political whims. Calls for the removal of a Fed Chair based on policy disagreements, even from non-official sources, can set a dangerous precedent. Market stability relies heavily on the perception that the Federal Reserve will act based on its dual mandate of price stability and maximum employment, not in response to pressure from specific industries or political actors.
Any genuine congressional inquiry, should one materialise, would inject a significant dose of uncertainty into markets. It would force investors to price in a new variable: political influence on the Fed’s reaction function. This could manifest in heightened volatility in bond yields, as the market questions the future path of interest rates, and a subsequent repricing of risk assets. The irony, of course, is that an effort to force a more favourable policy for one sector could undermine the very economic stability that all sectors rely upon.
A Signal Amidst the Noise
For now, the likelihood of Congress acting to remove Chair Powell remains exceedingly low. This incident is best interpreted not as a direct threat to his tenure, but as a potent signal of the extreme pressure building in interest-rate sensitive parts of the economy. It is a public airing of a private grievance felt by many in the real estate, construction, and mortgage finance industries.
The primary takeaway for investors is to monitor this friction as an indicator of political risk. While the activist’s campaign may not succeed in its stated goal, its ultimate influence could be more subtle. Our speculative hypothesis is that persistent and high-profile pressure from crucial economic sectors like housing could contribute to a political climate where the Fed feels compelled to pivot towards a more dovish stance sooner than the inflation data might otherwise justify. Such a premature pivot would present its own set of challenges, potentially reigniting inflationary pressures and forcing a more painful policy correction down the line. In this environment, discerning the genuine policy signal from the political noise will be paramount.
References
Pulte, W. J. (2024, July). Pulte calls for congressional probe into Fed Chair Powell. Investing.com. Retrieved from https://investing.com/news/stock-market-news/pulte-calls-for-congressional-probe-into-fed-chair-powell-4121426
Washburn, A. (2024, July 2). FHFA Director, Pulte calls on Congress to investigate Fed Chair Jerome Powell. Inman. Retrieved from https://www.inman.com/2024/07/02/fhfa-director-pulte-calls-on-congress-to-investigate-fed-chair-jerome-powell/
Reuters. (2024, July 2). Fannie, Freddie oversight chief, Pulte call for probe into Fed’s Powell. AOL. Retrieved from https://www.aol.com/fannie-freddie-oversight-chief-powell-180924614.html
Freddie Mac. (2024). Primary Mortgage Market Survey. Retrieved from https://www.freddiemac.com/pmms
National Association of Realtors. (2024). Existing Home Sales. Retrieved from https://www.nar.realtor/research-and-statistics/housing-statistics/existing-home-sales
National Association of Realtors. (2024). Housing Affordability Index. Retrieved from https://www.nar.realtor/research-and-statistics/housing-statistics/housing-affordability-index
@LuxAlgo. (2024, July 2). [Post regarding Federal Housing Agency and Fannie Mae, Freddie Mac Chairmen calling on Congress to investigate Fed Chair Jerome Powell]. Retrieved from https://x.com/LuxAlgo/status/1922998365312143636
