MAGGIE PAGANO: Trump playing with fire over Fed boss
Share prices fell sharply, bond yields shot up and the dollar slumped to a three-year low.
That was back in April. Even Trump was trumped by the market rout and, in classic style, has rowed back, denying the reports.
Since then, markets have settled down, persuaded that even Trump would not dare mess with the central bank's sacred independence. They reckoned his threats were yet another example of how the President often backs down on his more outrageous ultimatums. Or 'Taco', as it's been called: Trump Always Chickens Out.
Or has he? This week Trump stepped up his war with the man he blames for keeping interest rates too high. According to reports, the President sought and got support from House Republicans to sack Powell, waving a draft letter around announcing his departure.
It was also claimed that Trump had changed tack. That his new strategy is to sack Powell over his handling – or alleged mishandling – of the renovation of the Fed's HQ in Washington.
The restoration is around $600m (£447m) over the $1.9billion (£1.4billion) budget. Well, you can imagine the uproar. Trump has, of course, denied writing a letter.
But he did post on Truth Social, his social media site, on Tuesday night after the press stories: 'Consumer Prices low. Bring down the Fed rate, now!!!' Trump has also since said it's 'highly unlikely' he would do anything to remove Powell, unless 'fraud' is involved.
Privately, lawyers have warned the President that any attempt in the courts to remove the Fed chair would not succeed.
That has never stopped the President before. So far he hasn't ruled out such a move or, indeed, stopped his criticism.
Only yesterday he called the chairman a 'numbskull', one who has made buying a house too expensive for most Americans and has kept interest payments on its huge debt too high. US rates are 4.5 per cent.
In a highly unusual move, Trump wrote to Powell earlier this month, ticking him off for not cutting rates as other central bankers have done, name-checking the Bank of England and the European Central Bank.
In that subtle way he has, Trump wrote: 'You have cost the USA a fortune and continue to do so. You should lower the rate – by a lot!' Yet, surprisingly, Trump's threats this time around have barely dented Wall St. Quite the reverse. Share prices are cruising along to record highs and bond prices have barely flinched.
The names of Trump's favourite candidates to replace Powell – Kevin Hassett and Kevin Warsh – are openly being discussed. The question is why is there such a different reaction to his April outburst.
Is it because the markets still believe Trump dare not cross the red line breaking the Fed's independence? That he will do a Taco? Or do they secretly hope that Powell's credibility is now so bruised that he might just throw in the towel? You can't blame him if he does. But the Fed chairman is far more likely to keep fighting, especially as he's due to retire next May.
Either way, the pressure on the Fed to cut interest rates at its September meeting is now on big-time. It would be the right decision, and a move that would help the Bank of England to keep cutting.
What's for sure is that the annual central bankers' shindig at Jackson Hole in the US at the end of August promises to be much more fun than usual.
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