Capital Economics: Markets have already reacted to the potential dismissal of Powell by Trump, and the new chair will not be able to lower interest rates as desired.
Kai Tuo Macro North America Deputy Chief Economist Stephen Brown pointed out in his report that Wednesday's market reaction indicated how investors might respond if President Trump followed through on his threat to dismiss Federal Reserve Chairman Powell. Brown stated that in such a scenario, the US dollar, stocks, and short-term bond yields could fall, while long-term yields could soar. Trump has dismissed reports of his attempt to fire Powell, calling it "highly unlikely." However, the new Federal Reserve Chairman candidate is likely to be announced well before Powell's term ends in May 2026. Brown emphasized that even if the chairman is replaced, the Federal Reserve is highly unlikely to cut interest rates by 300 basis points as Trump has called for.
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