President Donald Trump reversed his threats to dismiss Federal Reserve Chair Jerome Powell, easing tensions that had rattled global markets and triggering a sharp rebound in US equities, Reuters reported.
I have no intention of firing him. I would like to see him be a little more active in terms of his idea to lower interest rates.
Trump’s abrupt shift in tone came after days of escalating attacks on Powell, whom he labelled a “major loser” and accused of delaying rate reductions. Markets had plunged earlier in the week, with the Dow Jones Industrial Average shedding 2.5% on Monday amid fears of political interference in central bank independence.
However, US stock futures surged by nearly 2%, while the Nasdaq Composite futures jumped 1.8%. Analysts attributed the rebound to relief over the Fed’s preserved autonomy, which Evercore ISI’s Krishna Guha called a “clear positive” that mitigates risks of stagflation or a sovereign debt crisis.
Whether this reflects Monday’s brutal foretaste of what would happen in markets if he did try to fire Powell, or was the plan all along, it is a clear positive. It materially reduces the likelihood of worst case outcomes including stagflation and the morphing of the tariff crisis into a sovereign debt crisis, though these risks remain.
The episode underscores unresolved questions about presidential authority over the Fed. While the Federal Reserve Act of 1913 permits governors to be removed only for “cause” — typically misconduct — the law does not explicitly protect the Fed chair’s four-year term, creating a legal grey area. The White House’s exploration of legal pathways to dismiss Powell, alongside ongoing Supreme Court cases challenging Trump’s removal of officials from other independent agencies, has kept markets on edge.
Trump also hinted at progress in trade talks with China, suggesting tariffs could be “substantially” reduced — though not eliminated — under a future deal. The dual narrative of de-escalation (on both Powell and tariffs) buoyed investor sentiment, yet underlying risks persist.
Powell has repeatedly defended the central bank’s independence, stressing that its decisions are guided by economic data, not political demands. Yet Trump’s rhetoric risks eroding public confidence in the institution, with analysts warning that perceived politicisation could destabilise the dollar and long-term US debt markets.
