Firing Powell? Trump's TACO deal resurfaces, causing significant turbulence in US stocks, the dollar, and gold prices

U.S. President Donald Trump once again put Federal Reserve Chairman Jerome Powell in the spotlight on the evening of July 16, Eastern Time. Just hours after he expressed to Republican lawmakers that he would "fire Powell," he immediately denied the plan, stating that it was highly unlikely he would take such action unless Powell was found to have committed fraud in the Fed's headquarters renovation project.

This statement caused a brief but intense fluctuation in the financial markets, marking a typical "Trump TACO" (Trump Always Chickens Out) maneuver.

According to multiple mainstream U.S. media reports on the evening of the 16th, Trump, during a meeting with Republican House members in the Oval Office, asked whether he should fire Powell and, after receiving support, stated that he would "act soon." A senior White House official revealed that Trump even drafted a termination letter and presented it during the meeting.

However, just an hour later, Trump publicly stated to the media at the White House: "We have no plans to do that. I do not rule out any possibility, but I think the likelihood of that happening is very low, unless he (Powell) has to leave due to fraud."

Trump further explained that the $2.5 billion renovation project at the Fed headquarters had cost overruns, and he suspected there might be fraud involved. He stated, "Fraud is possible... so things could go in that direction. But I think he is not doing a good job. His job is actually very simple; do you know what he should do? Cut interest rates."

After the news of "Powell may be fired" broke, the financial markets reacted swiftly: U.S. stocks fell, U.S. Treasury yields soared, the dollar index retreated, and gold prices surged. As reports of "Trump has drafted a termination letter" further developed, the market's downward trend intensified.

However, as Trump denied the plan and claimed, "I am more conservative than the Republicans," the market quickly reversed. U.S. stocks regained all losses, U.S. Treasuries and the dollar rebounded, and gold partially gave back its gains.

Trump's dissatisfaction with Powell has been longstanding. Since he nominated Powell to succeed Janet Yellen as Fed chairman in 2018, their relationship has been tense. Especially in the past two years, Trump has repeatedly criticized Powell for being "slow to act" on monetary policy and failing to cut interest rates in a timely manner. Recently, he has hoped for a significant interest rate cut of up to 3 percentage points at the FOMC meeting at the end of July, far exceeding current market expectations.

However, the Federal Reserve under Powell has maintained a cautious approach, currently keeping the federal funds rate in the 4.25%-4.5% range and emphasizing the need to observe inflation trends and economic data before making further decisions.

Despite Trump's repeated threats against the Fed, according to a recent ruling by the U.S. Supreme Court, the president does not have the authority to arbitrarily dismiss the Fed chairman unless there is "just cause." Powell himself has publicly stated that his position is protected by law, and "the president cannot fire me for policy disagreements."

Within the Republican Party, there is no consensus on Powell's fate. French Hill, chairman of the House Financial Services Committee and a Republican, stated on Wednesday, "I don't think Trump will fire Powell." Treasury Secretary Janet Yellen also expressed that she believes this will not happen However, Republican Congressman Anna Paulina Luna from Florida revealed on social media platform X: "I heard Powell is going to be fired! The source is very reliable." She then added: "I am 99% sure the dismissal is imminent."

As of Wednesday's close, the Nasdaq reached a record closing high, the Dow rose by 231.49 points, an increase of 0.53%, closing at 44,254.78 points; the Nasdaq rose by 52.69 points, an increase of 0.25%, closing at 20,730.49 points; the S&P 500 index rose by 19.94 points, an increase of 0.32%, closing at 6,263.70 points. Spot gold rose by 0.67%, and the dollar index fell by 0.35%