Markets rattled by 'credible threat' of Trump trying to fire Fed chief Powell

Reaction reflects unease over possible end of Fed's decades-long independence

- 

NEW YORK - Once again, US President Donald Trump demonstrated his power to shake up global financial markets. This time, by returning to one of his favorite topics: whether to fire Federal Reserve chair Jerome Powell.

In an echo of the havoc that Mr. Trump unleashed with his trade war in early April, markets were briefly turned upside-down on July 16 after a White House official said the President was likely to soon remove Mr. Powell.

Stocks, the US dollar and long-term US government bonds quickly retreated, while short-term Treasuries rallied on speculation that whoever Mr. Trump appoints to replace Mr. Powell will bend to the President's will and cut interest rates.

Yet in less than an hour, the moves unwound after the President downplayed the possibility, saying he was "not planning" to fire Mr. Powell, someone he has been lobbing almost daily criticisms at for moving too slowly.

By most measures, the markets' reaction was relatively muted, in no small part because of Mr. Trump's penchant for bluffing, not to mention questions about whether a US president has the legal authority to actually remove a Fed chair whose interest rate policy he dislikes.

But the message that markets sent was not so muted. To many, the initial moves reflected a deep-seated uneasiness that Mr. Trump will do what had long been unthinkable: That by firing Mr. Powell, he will end the Fed's decades-long independence in setting monetary policy, and in the process risk stoking a surge in inflation.