If it didn’t seem inevitable before Wednesday, it does now.
US president Donald Trump has insulted and pushed Federal Reserve president Jerome Powell almost since the day he returned to office, demanding he lower interest rates.
So far, Powell has resisted, amid concerns that Trump’s tariffs will push up inflation and the fact that the economy has broadly been humming along, regardless of what moves the president has made elsewhere.
Clearly Trump won’t reappoint Powell when his term is due to end next year, but could he get rid of him before then? Strictly speaking, Trump doesn’t have the power to fire Powell unless it’s for cause.
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Yet it seems almost certain that Trump will test that legal grounding. Multiple reports on Wednesday indicated he has prepared a letter sacking Powell and has canvassed Republican lawmakers on whether he should do so. Indeed, he is likely to fire him soon, Bloomberg News reported. Within two hours of the reports becoming public, Trump had rowed back, saying he didn’t plan to fire him.
If he did sack him, what would happen next? The dollar would drop, as would US shares and bond yields. The “sell America” trade, which has seen investors dump US assets periodically since Trump’s original tariff announcement in April, would most definitely be back on.
Then again, traders seemed to readjust to the so-called Taco trade once Trump did his now almost routine U-turn and said he was “not planning on doing anything” about Powell later in the day.
The dollar rallied as did shares and bond yields. Trump appeared to have chickened out once again, and investors had taken that as their cue to start buying again.
It does make us wonder though. Politicians and business tell us time and time again that investors want certainty. Trump’s moves are almost the diametric opposite of that, yet markets shake such gyrations off.
As Bill Gross, one of the most influential bond investors of his generation, posted on X in April: “would you want to own highly volatile US stocks whose price depends on whether POTUS had a good night’s sleep and woke up the next morning to reverse yesterday’s policies?”
