Trump Walks Back Threat to Fire Fed Chief Powell, Markets Rebound

Federal Reserve Chairman Jerome Powell needn't worry about losing his job anytime soon, President Donald Trump made clear Thursday evening. That's because Trump, despite previous public criticisms of Powell, has no current plans to put someone else in charge of the U.S. central bank. From the Oval Office, Trump told reporters he has "absolutely no plans" to replace Powell, who has come under fire from Trump for not cutting interest rates more rapidly.

Trump’s recent sharp comments, including calling Powell a "major loser," had spooked markets last week, triggering a rapid selloff in US stocks, bonds, and the dollar. But with the President's latest assurance, financial markets seemed to find their footing again, with Asian and US indices nicely rebounding on Wednesday. Analysts think Trump is trying to influence monetary policy via his remarks, rather than trying to pull Powell out of his role. But they also voice concern that all this is undermining the appearance of central bank independence.

Markets Breathe Easier as Powell Keeps Seat

Following Trump’s toned-down remarks, investor feeling shifted to the upbeat. Asia’s key stock markets surged in morning trading. Japan’s Nikkei 225 index shot up 1.9%. Hong Kong’s Hang Seng index surged 2.4%. Even the Shanghai Composite, which had been struggling, inched up 0.1%. In the U.S., stocks continued to rise sharply with the S&P 500 closing 2.5% higher on Tuesday and the Nasdaq rising 2.7%. Futures markets suggested that this optimism would carry into midweek.

The bounce reflects the relief that leadership at the Federal Reserve is likely to remain stable, at least in the short term. Many investors feared a leadership shakeup could trigger even more policy confusion at an already confusing time when global economic signals are decidedly mixed.

Trade Tensions Still Cast Long Shadow

Although Powell's position looks secure for the time being, the bigger issue of trade seems to be going unresolved. Trump gave a hint during the week that he might take a softer line with China, specifically, he suggested that he might lower tariffs if that country comes to the negotiating table. He didn't, however, suggest that he might eliminate them. Perhaps more telling was what Treasury Secretary Scott Bessent said during the week. He called the current trade environment "unsustainable" and expressed the view that a de-escalation of tensions was necessary.

Even if markets are reacting well at the moment, there is still a lot of uncertainty around the prospects for free trade. The friction between the U.S. and China, not to mention other global partners, is continuing to cloud the outlook. Policymakers are obviously concerned about inflationary pressure arising from tariffs, especially when the bullish factors for the stock market today are tied to fears that we are heading for a recession.