17.07.25 - No fear! Shaking off negative news and Powell firing rumors
Wednesday brought renewed political drama as markets reacted to rumors that Donald Trump was preparing to fire Federal Reserve Chair Jerome Powell. The New York Times reported that Trump had shown House Republicans a draft termination letter. A senior White House official later told CNBC that Trump asked lawmakers whether he should proceed, and received support.
This pressure campaign against Powell is not new. Trump has already several times criticized the Fed chair for not cutting rates in the face of economic headwinds and inflation concerns. Powell, meanwhile, has maintained a more cautious stance, indicating the central bank would keep rates steady until it sees more clarity on inflation and the economic impact of tariffs.
Later in the day, Trump walked back the firing talk, calling such a move "highly unlikely," calming nerves after a few volatile hours.
Markets: Major equity markets are trading flat or higher - US long-term yields unchanged - US dollar stronger - gold slightly negative while most cryptos bounce except Bitcoin.
My view: Markets are showing a remarkable ability to shrug off risks, even ones that would historically have sent shockwaves through financial systems. The idea of a US president firing a Fed chair mid-term would normally trigger widespread concern over the central bank’s credibility and independence.
That this episode caused only a short-lived dip highlights today’s speculative environment, where negative headlines are quickly dismissed or reversed by a new tweet or statement. But this doesn’t mean the risk is gone, it’s simply being ignored.
Markets remain vulnerable to political volatility, especially when it involves monetary policy. I see this as another sign of complacency and a growing gap between headline risk and market reaction. It’s a dangerous divergence that could lead to sharper corrections once sentiment turns.
On the interest rate policy front, Powell has no urgency to cut rates. Based on recent economic data, the Fed is likely to hold steady. But should the US economy weaken, whether from tariffs or other shocks, Trump could have someone to blame.
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