Trump Will Not Dismiss Federal Chair Powell
In a move that has been met with relief by financial markets, US President Donald Trump has denied reports suggesting he was close to firing Federal Reserve Chair Jerome Powell. The denial came after multiple news outlets claimed Trump had expressed intentions to dismiss Powell, citing a dispute over cost overruns in the renovation of the Fed's headquarters in Washington.
The media reports caused financial markets to stumble throughout the day, with major US stock indices turning negative and the dollar falling by up to 0.7 percent against a basket of major currencies. The uncertainty surrounding the potential politicization of the Federal Reserve and the future of U.S. monetary policy had investors on edge.
Trump's denial appears to be aimed at preventing market instability, as a move to fire Powell could break more than a century of Federal Reserve independence and send financial markets into turmoil. The President has been vocally critical of Powell for not lowering interest rates to levels he desires, wanting rates multiple percentage points lower than current levels.
However, Trump later clarified multiple times that he was not planning to fire Powell, stating that such an action was "highly unlikely." This context explains why Trump might want to deny imminent firing plans to calm the markets, which were described as "on a knife's edge" awaiting news on the matter.
The situation has highlighted market sensitivity to potential political interference in the Federal Reserve, affecting investor confidence and financial stability. Investors fear that removing Powell for political reasons could undermine the Fed's credibility and independence, potentially influencing interest rates and inflation expectations in unpredictable ways.
Trump's denials served to ease immediate market fears but underscored ongoing tensions between the White House and the Fed over interest rate policy. On Tuesday, US Treasury Secretary Steven Mnuchin stated that the search for a successor to Powell was already underway, adding to the speculation surrounding the future of the Fed.
Despite Trump's denial, the situation has not been entirely resolved. Reuters reported that an insider said Trump was open to the idea of firing Powell, and there were reports that Republican members of the House Financial Services Committee were scheduled to meet with Powell later that evening, although this has not been confirmed.
Trump may have alluded to this dispute with his mention of potential "fraud." The President's administration has accused the Fed of mismanagement, a claim that has not been substantiated. Under US law, the President cannot fire the Fed Chair over a dispute about interest rates.
In the meantime, interest-sensitive assets such as regional US bank stocks declined, while gold prices rose as investors sought safe-haven assets. The 30-year US Treasury bonds were sold off, pushing their yield up by about five basis points.
After Trump's denial, many assets recovered, reflecting the relief felt by the markets. However, the ongoing tensions between the White House and the Fed suggest that this is not the end of the story. The US President has dismissed a media report about a potential imminent dismissal of Federal Reserve Chair Jerome Powell, leaving a backdoor open for future developments.
[1] https://www.cnbc.com/2019/10/08/trump-says-he-is-not-planning-to-fire-federal-reserve-chair-jerome-powell.html [2] https://www.nytimes.com/2019/10/08/us/politics/trump-powell-federal-reserve.html
- The Commission, referring to the Federal Reserve, has also been consulted on the draft budget, given the ongoing discussions between the White House and the Fed over interest rate policy and monetary decisions.
- The potential politicization of the Federal Reserve, stemming from the dispute between the President and the Fed Chair, is a matter of policy-and-legislation, with the future of U.S. monetary policy and the independence of the Fed at stake.
- The general news landscape has been buzzing with politics, as investors and financial markets alike grapple with the potential implications of the ongoing tension between President Trump and Federal Reserve Chair Jerome Powell on business and finance.
