Relief For Dollar as the Powell Question is Put to Bed


 Image: Federal Reserve.


The one route to firing the Fed Chair is now firmly closed.

The Dollar is up against most G10 peers ahead of the weekend on signs that the Federal Reserve Chair Jerome Powell will serve out the remainder of his term.

Following a tour of the Federal Reserve's headquarters in Washington, U.S. President Donald Trump said there was "no tension" between him and the Fed Chair.

He also indicated there is not enough reason to fire him. "To do that is a big move, and I just don’t think it's necessary," he said.

The Fed is renovating its headquarters, which have not had a major update since completion in the 1930s. The Administration saw cost overruns as a potential route to ousting the Fed Chair before his term expires next year. This after the Supreme Court confirmed the Fed Chair cannot be removed by the President, but he can be removed for "cause", i.e. impropriety.

The Administration's attacks on the Fed have unsettled markets, which see the sanctity of U.S. institutions as being a key component of the attractiveness of U.S. assets, including the Dollar.

Trump has on numerous occasions expressed deep displeasure over the Fed's refusal to cut interest rates, expressed through barbed personal attacks and threats to remove Powell.

The attacks risk confidence in the U.S. while also raising the prospect that the Fed errs on the side of cutting interest rates when they would not have done so previously.

Such behavioural shifts risk bad economic outcomes, for instance, prolonging this period of above-target inflation.

For the Dollar, there are few positives in all this, which explains the relief that follows Trump's visit and comments.


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