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Markets On Edge As Trump Doubles Down On Anti-Powell Rhetoric

Trump

Trump “made” Federal Reserve Chair Jerome Powell, the president claims in his most recent public lashing out at the central bank head. In fact, Trump dislikes Powell so much that he would even be willing to switch him out with another figure he has previously reviled: Powell’s EU counterpart, Mario Draghi.   Speaking to Fox Business Network, Trump said that Powell, in contrast to Draghi, was “sucking [money] like from a vacuum cleaner”. 

He went on to state that “Here’s a guy nobody ever heard of him before, and now I made him, and wants to show how tough he is.”

Trump praised Draghi for doing what he described as the opposite of Powell. The European Central Bank head stated earlier this month that he would introduce further stimulus measures if the eurozone’s economic situation deteriorated in the coming comings. 

“We should have Draghi instead of our Fed person,” Trump said

While they will ignore the worst of grammar, investors aren’t keen on such flippancy when it comes to the Fed, but the market has grown more immune to Trump’s unprofessionalism, Twitter tyraids, and teenage-style rants that suggest doing things that no official would or should do. 

That doesn’t mean the consistent Powell-bashing isn’t making the markets nervous, though. But the fact that Trump has been on the warpath against Powell since the Fed raised interest rates last year has served to soften the effects. 

Powell is still there, whether Trump is his overlord or not. This is not, after all, Turkey, or Uzbekistan--yet.  

On Wednesday, in an interview with Fox News, Trump persisted in his claim that he, as president, has the right to fire Powell, whose term expires in February 2022, though many a legal expert would disagree. 

From a legal perspective, Powell would have to have committed some sort of malfeasance, which does not include a policy dispute with the president. 

Removing a sitting Fed chair would tell investors that the U.S. central bank is not independent under Trump. 

However, this is election campaign time, and an incumbent president such as Trump is not thinking of long-term disaster. He’s thinking of short-term political gain. If he were to succeed in removing Powell, he would replace him with someone who would be sure to immediately cut interest rates. 

Related: China's Economic Growth Exceeds Analyst Expectations

The market is a highly fickle entity and responds to short-term catalysts. And predicting what the market would do when presented with the mouth-watering immediacy of a rate cut against the disastrous removal of independence is a tricky thing. 

If Trump could be sure of the market’s short-term response, he would attempt to remove Powell. 

Indeed, on June 25th, the Dow lost more than 150 points in its worth day of the month when the Fed set out to calm the enthusiasm for a rate cut. Markets had soared on their interpretation of Fed notes, with high optimism for a rate cut next month. They were latching on to Powell’s comments that the central bank was assessing whether current economic uncertainties called for lower rates. 

Trump’s Fox Business News rant followed Powell’s tempering of this enthusiasm. 

But Trump will also be examining the pending legal battle here, should he decide to move against Powell. 

A legal battle would, effectively, be less about Powell and more about the bank’s independence, and the Fed doesn’t seem terribly worried, certain that it’s on solid ground from a legal standpoint

“There would be pressure on [Powell] to stand up for himself, not because he himself is that significant but because the independence of the Federal Reserve would be called into question,” Jeff Hauser, executive director of the Washington-based Revolving Door Project, told Reuters

Reuters also points out that there are two groups serving as the caretakers of our economy: The Fed board and the Federal Open Market Committee (FOMC), which sets the rates for the Fed. FOMC gets to choose its own head, and if Trump chose to demote Powell, FOMC could still choose him to lead, even though the Fed chair has traditionally led both. If we have two separate heads here, the policy will be divided for the first time in history. 

Juxtaposed with Trump, Powell has been a bastion of sobriety and refuses to take the public bait when asked about the mounting presidential attacks. 

"We are human. We make mistakes. I hope not frequently, but we will make mistakes. But we won't make mistakes of integrity or character,” Powell stated immediately prior to Trump’s rank on Fox. 

He also noted earlier this week that the Fed remained independent of “short-term political interests”. 

By Fred Dunkley for Safehaven.com

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