Powell Controversy Strikes: Trump's Remarks Trigger Market Reactions
On the evening of July 16, local time, U.S. President Trump put on a "double act" regarding the tenure of Federal Reserve Chairman Powell, unleashing a series of ambiguous statements that rocked Wall Street. First, reports suggested he drafted a dismissal letter with some Republican lawmakers' support, then he publicly stated there were no plans to remove Powell. This sharp contrast was described by outsiders as another typical "Trump TACO" (Trump Always Chickens Out) move.
As markets quickly interpreted the rise of "political uncertainty," U.S. stocks, bonds, gold, and the dollar experienced a roller-coaster ride within hours. Trump's impromptu remarks once again highlighted the deep impact of "policy unpredictability" on asset prices.
Federal Reserve at the Eye of the Storm, Powell's Term Remains in Suspense
Despite Powell's term as chairman extending to May 2026, Trump's frequent signals of dissatisfaction with him are not news. Since his nomination in 2018, the differences between Trump and Powell on monetary policy have continued to escalate.
Recently, Trump demanded the Federal Reserve "immediately lower interest rates significantly" by up to 3 percentage points, well above the market consensus. He further stated on social media that Powell's "only job is to cut rates," criticizing him for failing to act promptly.
However, with inflation not yet fully eased and economic indicators still uncertain, Powell continues to adhere to a policy stance based on "data dependence," emphasizing that any easing measures should be adjusted appropriately based on macroeconomic trends.
Legal Protections Remain, Presidential "Action" Requires Just Cause
Under U.S. law, as the leader of an independent institution, the Fed chairman cannot be dismissed at the president's whim. The Supreme Court recently ruled that, unless there is "just cause" (such as misconduct or illegality), a president cannot remove him/her due to policy disagreements.
Powell himself stated earlier that if faced with an illegal removal attempt, he would resort to legal battles. This means that even with Trump's displeasure, there is still a high threshold for actual execution.
Nevertheless, the storm over whether to fire Powell still ripples through the market, underscoring the current politically charged state of the Federal Reserve.
Wall Street Shock: Gold, U.S. Stocks, and Dollar Move in Sync
News of the issue elicited an immediate response from the financial markets. U.S. stocks at one point dived, gold prices surged, the dollar index fell, and U.S. bond yields soared. Especially following reports of Trump drafting a dismissal letter, the market entered a brief panic.
However, after Trump "debunked" the rumor to the media, the market quickly rebounded, with U.S. stocks recovering losses, the dollar and Treasury yields stabilizing, and gold partially retreating from gains. Data showed the Dow Jones rose more than 230 points, the Nasdaq continued to reach new highs, gold rose 0.67%, and the dollar index fell 0.35%.
This reaction fully reflects the current market sensitivity to central bank independence and ongoing concerns about Trump's political interventions.
Uncertain Market Outlook, Policy Tug-of-War to Persist
Although Powell is "temporarily safe," disputes over the Federal Reserve's independence have not subsided. The Republican Party is clearly divided, with some openly supporting Powell's tenure and others hinting at his impending dismissal on social platforms.
As the 2024 election approaches and policy battles intensify, the tension between the Fed and the executive branch is unlikely to subside. In the coming weeks, investors should focus on whether the Trump camp continues to exert pressure, whether market expectations for monetary policy shift, and whether the Fed at the FOMC meeting explicitly communicates its stance on independence.
Although this wave has temporarily subsided, the uncertainty it leaves sows seeds of long-term volatility in the market.
