Firing Powell? Trump TACO trade reappears, with huge fluctuations in US stocks, the dollar, and gold prices.

On the evening of July 16th, US President Trump once again put Federal Reserve Chairman Powell in the spotlight. Just hours after he stated to Republican lawmakers that he would fire Powell, he immediately denied the plan and stated that it was highly unlikely that he would take such action unless Powell was proven to have engaged in fraud in the renovation project at the Fed headquarters. This statement caused a brief and intense fluctuation in the financial markets, which can be described as a typical "Trump Always Chickens Out" (TACO) operation. According to reports from several mainstream US media outlets on the evening of the 16th, Trump met with Republican congressmen in the Oval Office of the White House and asked whether Powell should be fired. After gaining support, he stated that he would take action soon. A senior official at the White House revealed that Trump even drafted a dismissal letter and displayed it during the meeting. However, just an hour later, Trump publicly stated to the media in the White House, "We don't have a plan to do that. I do not rule out any possibilities, but I think the likelihood of that happening is very low, unless he (Powell) has to leave due to fraud." Trump further explained that there was cost overruns in the $25 billion renovation project at the Fed headquarters, and he suspected fraud. He said, "Fraud is possible... so things could possibly go in that direction. But I think he is not doing a good job. His job is actually very simple, you know what he should do? Cut interest rates." After news of the possible dismissal of Powell spread, the financial markets quickly reacted: US stocks fell, bond yields surged, the dollar index fell, and gold prices rose sharply. With the further escalation of reports that "Trump has drafted a dismissal letter," the market's decline intensified. However, as Trump denied the plan and stated that he was "more conservative than the Republicans," the market quickly reversed. US stocks regained all lost ground, bonds and the dollar rose, and gold partially gave back its gains. Trump's dissatisfaction with Powell has been longstanding. As early as 2018 when he nominated Powell to succeed Yellen as Fed chairman, their relationship was tense. Especially in the past two years, Trump has repeatedly criticized Powell for being "too slow" in monetary policy and not lowering interest rates in a timely manner. Recently, he hoped that the Fed would cut rates by as much as 3 percentage points at the FOMC meeting at the end of July, far exceeding market expectations. However, under Powell's leadership, the Fed has maintained a cautious approach, keeping the federal funds rate in the range of 4.25%-4.5%, and emphasizing the need to observe the inflation path and economic data before making decisions. Despite Trump's numerous warnings to the Fed, according to a recent ruling from the US Supreme Court, the president does not have the authority to arbitrarily remove the Fed chairman unless there is a "valid reason." Powell himself has also publicly stated that his position is legally protected, saying, "The president cannot dismiss me due to policy differences." There is not a unified opinion within the Republican Party regarding Powell's fate. French Hill, chairman of the House Financial Services Committee and a Republican, stated on Wednesday, "I do not think Trump will fire Powell." Treasury Secretary Mnuchin also stated that he believed this would not happen. However, Republican congressman Anna Paulina Luna from Florida revealed on the social media platform X, "I heard Powell is about to be fired! The source of the news is very reliable." She later added, "I am 99% sure that the dismissal is about to happen." As of Wednesday's close, the Nasdaq hit a new closing high, the Dow rose 231.49 points, or 0.53%, to 44,254.78 points; the Nasdaq rose 52.69 points, or 0.25%, to 20,730.49 points; the S&P 500 index rose 19.94 points, or 0.32%, to 6,263.70 points. Spot gold rose by 0.67%, while the dollar index fell by 0.35%.