We believe Trump vs Powell battle is nearing it's climax. Trump does not like Fed Chair Powell. Not in 2020 and especially not now. Last week Trump said "“Powell’s termination cannot come fast enough!” & “If I ask him to, he’ll be out of there." Powell on the other hand in his 16th April interview portrayed chaotically implemented tariffs as plainly bad for the economy; he slammed the approach taken by the Department of Government Efficiency; and issued a legal defense for why he thinks he can withstand any attempt by Trump to fire him. In a way both of them are now fighting it out in the open. While treasury secretary Bessent is of the view that Powell should be allowed to complete his Fed Chair term, other Trump advisors want to bring him down. On 18th April National Economic Council Director Kevin Hassett said that Trump is studying whether he’s able to fire Federal Reserve Chairman Jerome Powell. We believe that Trump is likely to go ahead with firing Powell as hostilities between them have risen in public significantly. On 9th April, Supreme Court Chief Justice John Roberts had allowed Trump to go ahead with the firing of top officials at other agencies — a case that some see now as teeing up a more market-sensitive battle over whether Trump can fire or demote Powell. This does not augur well for a legal fight from Powell's perspective. We believe if Trump fires Powell, which we believe is a strong probability now, we might see higher 10yr UST yields as firing Powell implies higher inflation first. Any likely impact of possible rate cuts under a new FOMC Chair will be clouded under the ensuing legal fights between Powell & Trump administration. The 2-10 curve might steepen significantly. On risk assets, dollar will go severely hammered as well as US equities as investor’s angst over Fed’s independence & ensuing lack of credibility takes over any possible economic respite from possible rate cuts later. Euro & JPY will go massively bid in this round of dollar rout and EM FX might participate only partially.
