The U.S. stock market reduced its deep losses on Wednesday after President Donald Trump stated that he would not remove Federal Reserve Chair Jerome Powell from his position. The market experienced a sudden disturbance when Bloomberg released information about Trump considering Powell’s dismissal through an unnamed White House source.
The S&P 500 index experienced a 1% decline before it regained most of its lost value. The Dow Jones Industrial Average rose 0.05% while the Nasdaq Composite Index decreased 0.14%. The brief market panic caused Treasury yields to rise while the dollar value decreased. The VIX volatility indicator reached its highest level in three weeks before it started to decrease.
Trump announced his denial of the reports after he increased his criticism toward Powell because of the Fed chair’s refusal to lower interest rates. The Fed faces opposition from its policymakers regarding Trump’s repeated demands for interest rate reductions because they want to see stronger evidence of inflation risks caused by tariffs.
The market participants and analysts did not give credence to the reports about Powell’s potential dismissal. According to Aptus Capital’s David Wagner the public should ignore any disputes between Powell and Trump. Market participants expect the Federal Reserve to announce its new chair within the next few months.
The Supreme Court’s recent decision together with legal analysis indicates that a president lacks the authority to remove a Fed chair because of differing policy opinions. The ongoing attacks from Trump have created doubts about the Federal Reserve’s independence which serves as a fundamental element for U.S. financial stability.
