The fate of Chair of the American Federal Reserve Jay Powell looks more and more uncertain because the Trump administration increases the central back pressure to reduce rates faster.
Powell has been resolved that he will not be influenced by Trump’s attempts to influence the Fed, by sticking rather to his mission to reduce any inflation that could be caused by prices.
“He (a) indicated that the Fed would probably put its anti-inflation mandate before the objective of seeing full employment in the United States if the price pressures were higher,” said Steve Clayton, head of action funds at Hargreaves Lansdown.
The term Powell as President of the Fed will end in May of next year, although it will continue its board of directors for two years.
The markets are incredibly nervous about the consequences that Trump’s loyalist is installed following a dismissal from Powell could have on the American economy.
John Plassard, principal investment specialist at Mirabaud Group, warned that this decision “would undermine the independence and credibility of the central bank in the eyes of the markets”.
In Turkey, President Recep Tayyip Erdogan dismissed the governors of the Central Bank and set up loyalists who have reduced interest rates in a push for growth, a decision that has finally led to arrow inflation in the country.
Similar incidents have occurred in other emerging markets where the independence of the central bank has been eroded, but rarely, if never, has occurred in the developed world.
Trump and Powell
However, although he initially named Powell to work, Trump frequently attacked the online chair so as not to comply with his favorite monetary policy.
“Powell’s termination cannot come quickly enough,” the president wrote in an article on his social media website Truth social today.
Trump also said that Powell was “still too late and badly”, adding that he “should have reduced interest rates, such as the (European Central Bank) a long time ago, but he should certainly lower them now.”
The spread between five years of treasury bills and 30 years quickly enriched In the minutes following Trump’s comments, on fears that Powell dismissal could further destabilize markets.
The president’s comments follow many previous remarks forward Powell, including a tirade earlier this month when Trump said: “Cut interest rates, Jérôme and stop doing politics!”
“The Fed will not be intimidated by Trump alone, but Trump will eventually shoot Powell if the rate reductions are not to come,” said Matt Gertken, chief geopolitical strategist of BCA Research.
However, at the end of last year, Trump said that he would not call on Powell of his presidency before the end of his mandate. “No, I don’t think so. I don’t see it,” said Trump.
Earlier this month, the Supreme Court authorized Trump to temporarily withdraw two members of the Board of Directors of Federal Work Agencies and decides if they can be permanently dismissed.
Speculations have been widespread that if the Tribunal for Trump, considered to be the most likely result, the president could use the decision as a Justification to pull Powell.
However, Powell said yesterday that the case would probably not let Trump send him back.
“I don’t think this decision applies to the Fed, but I don’t know”, this is a situation that we monitor carefully. “”
The candidates floated to replace Powell include Christopher Waller, a member of the Fed Board of Directors who tried to attract the president’s attention with “Uber-DDD remarks” to rate reductions, according to Pepperstone analyst Michael Brown.
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