The contours of the story linked to the possible removal by his assignment, before the expiry, of the president of the Federal Reserve, Jerome Powell, are tinged with yellow.
The President of the United States, Donald Trump has returned to shake the spirits, reiterating once again his different vision on rates and, on monetary policy in general, adopted by the banker.
“I think he does a bad job. Fortunately, we will be able to make a change in the next, let’s say about eight months, and we will choose someone valid “
Trump said, referring to Powell’s mandate that will end next year.
Trump does not want to fire Powell: “Highly unlikely”
The tenant of the White House in front of the first reactions of the investors, with Wall Street passed into a negative territory by a session of session in cautious rise, tried to dissipate the fears declaring during the press conference of the White House with the hereditary prince of Bahrein which is “highly unlikely” that laid down the president of the Fed, despite the fact that in front of several deputies of the Gop he had declared that he was considering that was considered.
“I just want honest work. We want to see lower interest rates. Our country deserves it. “And, to the question of a journalist:” It completely excludes the idea of firing Jerome Powell? “
The tycoon denies, but threatens the dismissal for fraud
The indiscretion, rebounded in the American media, then publicly denied by the tenant of the White House, continues to ask questions among the investors. Trump said “It is very unlikely, but I don’t exclude anything”. And, these are these last words “I don’t exclude anything” who create uncertainty among the insiders. Then, the tenant of the White House, increase the dose: “Unless you leave for fraud. I think it is already under investigation. “The reference is to the controversial renovation works of the Fed headquarters in Washington, cost 2.5 billion dollars, well beyond expectations.
What would happen if Trump fired Powell?
Having already seen the reaction, albeit contained, of yesterday of the American markets, only voices, could be witnessed, in the face of the concreteness of a dismissal, to a collapse of the dollar and US government bonds. On the eve, the index of the US dollar, which measures the strength of the green ticket compared to the six main foreign currencies, dropped up to 0.8%. The independence of the Fed is a fundamental pillar for US financial markets and the perception of an erosion of this independence could trigger a strong sale of the dollar and the US government bonds, with consequent permanent damage to the markets and the American economy, as well as its international reputation.
The limited drop of Wall Street to the dismissal rumors, then denied by Trump, argued that the probability that the president actually moves to extract the president of the Fed, remains low. “Trump wants lower interest rates: he thinks that Estructure Powell will make the difference, but most market analysts believe that the signal would send that the Fed has lost its independence,” said Greg Valliere, head of the US political strategy of Agf Investments, in a note.
Fed’s independence is fundamental
Financial markets favor independent central banks that can focus on inflation and on the labor market without fearing political interference.
In the last few days, the markets have not “received” the possibility of removing Powell, analysts affirm, which leaves room for a strong reaction from the markets if Trump grasped surprise investors and proceeded with a legally controversial move to affirm control over the Fed.
George SaVelos, a global manager of Deutsche Bank’s FX strategy, said, in a note, that Powell’s removal represents “one of the greatest underestimated risks” for the markets. “It is obvious that investors would probably interpret such an event as a face aimed at the independence of the Fed, putting the central bank under extreme institutional pressure,” said Savelos. “With the Fed at the top of the global monetary system of the dollar, it is also obvious that The consequences would reverberate well beyond the boundaries of the United States“Saratelos also said to predict that the dollar would drop from 3% to 4% in 24 hours if Powell was removed, which represents a huge move on currency markets.
