Stocks pared losses after President Donald Trump backed away from reports that he’s getting ready to fire Federal Reserve Chairmain Jerome Powell.
Major indexes dropped sharply after a White House official told Bloomberg that the president was likely to fire the Fed chief soon, and had discussed Powell’s termination in a meeting with Republican lawmakers on Tuesday.
A senior White House official confirmed to BI that Trump asked a group of lawmakers how they felt about him firing Powell on Tuesday, and that they expressed approval for firing him. Trump then indicated that he “likely will soon,” according to the official.
But when speaking in the Oval Office on Wednesday, Trump appeared to refute the reports, saying it was “highly unlikely” he would fire Powell.
“No, I’m not talking about that,” the president said. “Fortunately, we get to make a change in the next what, eight months or so, and we’ll pick somebody that’s good.”
The S&P 500 and Nasdaq 100 each shed 0.5%, while the Dow Jones Industrial Average dropped 200 points mid-day Wednesday, but the moves reversed as Trump said he wasn’t looking to oust the Fed chair.
It is unclear how soon Trump could move to fire Powell, or whether he will do so at all — the president is known to change his mind or reverse course, especially as markets balk at his proposals.
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Trump said in April he had no intention of firing Powell, but markets have been rattled by the president’s numerous attempts to undermine Powell’s influence this year.
Earlier this week, analysts at Deutsche Bank said Trump removing Powell from his post was one of the most underappreciated risks in markets, with investors pricing in just a 20% chance of Powell’s removal this year. The event could also pose severe risks to the currency and bond market, the bank wrote.
Market pros generally agree that firing Powell could lead to a series of negative consequences for the economy and financial markets, mainly because it puts the Fed’s independence into question and shakes confidence that the central bank will be able to tame inflation by keeping interest rates elevated.
