Trump Discussed Possibility of Firing Jerome Powell Amid Stock Rout

Jerome Powell and Donald Trump Photographer: Andrew Harrer
  • Trump Discussed Possibility of Firing Jerome Powell Amid Stock Rout

The report that president Trump is discussing the possibility of firing Federal Reserve Chair, Jerome Powell, sent global financial market shaking ahead of Christmas.

President Trump blamed the U.S. stock rout on Federal Reserve’s rate policy that has seen borrowing cost risen to 2.5 per cent after four consecutive hikes in 2019.

Federal Reserve had raised benchmark lending rate by 25 basis points last week, saying the economy continues to create jobs even as the unemployment rate remained at 49 year low of 3.7 per cent. Jerome Powell said wage growth ticked up to 3.1 per cent, suggesting that tight labour market has started forcing businesses to increase wages in order to attract skilled employees as projected in the first quarter of the year.

Despite strong economic numbers coming from the world’s largest economy, the stock market has declined by about $5 trillion in market value in the last three months. Putting President Trump, who has based his success in the last two years on stock performance, in an unlikely situation.

People familiar with the matter said the president has repeatedly discussed the possibility of firing the Central bank chief, Jerome Powell, in recent days.

“You would think that after coming off of the worst week for the markets since the financial crisis in 2008, he would look to create some stability,” said Chuck Cumello, CEO of Essex Financial Services. “Instead we get the opposite, with this headline and more self-induced uncertainty. This coming from a president who when the market goes up views it as a barometer of his success.”

Sensing potential disaster, Steven Mnuchin, Treasury Secretary stepped in to assure market participants that the Federal Reserve Chair, Jerome Powell, won’t be fired as the President does not have that authority.

Still, the uncertainty surrounding the administration has created a disconnect between positive US economic data and market perception. Majority of businesses believe growth will slow down in 2019 with huge capital outflow despite strong growth recorded in 2018, much of which they attributed to weak interest in U.S. assets and limited rate hike.

The tax cut has failed to stimulate growth as projected by President Trump, weak global growth due to trade protectionism keeps hurting global demands and expected to affect exports from the U.S. to Europe. OPEC cuts failed to lift oil price as Chinese imports, the largest importer of crude oil, is expected to drop in 2019.

The excess profit from tax cuts expected to be invested by businesses to sustain job creation and boost economic productivity was largely spent on stock buyback, putting business investment 28 per cent below Obama’s administration.

Going forward economic policy will dictate market’s direction, at least in the first half of 2019.

The S$P 500 slumped by 7.1 per cent last, while the Nasdaq Composite Index dipped into a bear market.

About the Author

Samed Olukoya
CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and, with over a decade long experience in the global financial market. Contact Samed on Twitter: @sameolukoya

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