Donald Trump needs Jay Powell

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Good morning. Rob here, he returned from a week in Santa in the Beautiful, tanned, comfortable, ready and tired of looking at turquoise jewelry. A miserable market yesterday gave me a reassuring feeling that nothing changed in my absence. If I miss anything, send me: Robert.arstrong@ft.com.

Perhaps Trump will not try to force Powell to go out, because that would be a fantasy stupid thing

The market does not like this when the President threatens the President of the Federal Reserve. Of course, Donald Trump had been subjected to Jay Powell before, but yesterday’s delivery was more acidic than usual, and came after Trump’s adviser Kevin Haysit said that the White House “will continue to study” Trump from the central Middlesum banker. The stocks below, the dollar down, short returns down, long returns, tight fluctuations, the gold road up. Ike.

We expect Grousing to continue. But I don’t think Trump will try to launch Powell; I was putting this in about 10 percent. I think this will be against Trump’s interests, in clear ways.

Yesterday was just a taste of how the market responded to a successful attempt to get Powell out of his job before his term ended next May. I expect the impacts of the market to be first -class and the second -class economic effects to end the independence of the federal reserve is severe enough to drain the political capital administration, which will need to be accomplished a lot from the legislative point of view before mid -time, and the Trump party cost the House of Representatives or the Senate in those elections. Crow can actually be heard in the vicinity of the Republican Party on Trump’s economic policy. It has an endless space to roam.

(Aside, if Trump announces his choice of the next Federal Reserve Chair, and he was the head of Liki McLickSpittle to start making statements of politics before taking office, this is equivalent to Powell’s launch, and perhaps more frightening for markets).

It is not only the high risk of movement that must bend Trump; The returns are low, too. The impact of the destruction of the independence of the central bank can be classified in the shock of the market and the effect on monetary policy. The shock of the market will decrease to reduce stock evaluations permanently and the number of high bond installments – that is, the decrease in stock and bond prices, all of which are equal – because the expected volatility of inflation and rates will rise, regardless of what the newly appointed president did.

The new chair is supposed to lead to price discounts. This may be the right call. The negative effect of definitions on growth may overwhelm its inflationary effects. Or perhaps the inflationary effects are once. It is difficult to predict. But Trump would have paid a better monetary policy with a market shock that could easily cause stagnation. The recession takes all the fun of low prices. On the other hand, if the reduction rates are the wrong decision, the inflation will have to return and the rates must rise from what they were, without reducing the risk of stagnation a lot. There is also a great cost to get rid of Powell: the absence of a scapegoat if the economy continues to falter. If Trump gets a pet feed chair, he possesses everything that happens.

All this, in exchange for a federal reserve chair per year sooner than that? No thank you. I think the risk/bonus mix to force Powell to go out is terrible, and Trump may see it.

(By the way, I said above that the end of the federal reserve independence means low bond prices Everything is equal. But everything else may not be. If the market shock is bad enough, the bond market may see through inflationary risks to stagnation, and bond prices may rise immediately).

After I mentioned my expectations of such confidence, readers should know that Wall Street’s opinion on this issue is wide. The chief investment employee in a very large wealth manager told me yesterday that Trump’s chances are forcing Powell to go out:

Very low [as] It will certainly lead to a capital of the United States. But Trump is frustrated and unlikely to stop talking about it, and therefore, the markets will be priced in the madness of greatness.

Wall Street strategic expert:

I put possibilities about scratch. When you see John Kennedy, a great Republican in [Senate] The banking committee, which weighs during the weekend that Powell supports and feeds independence, you feel the meaning that they fully realize and wanted to communicate immediately that Powell’s launch would be a body championship for the treasury and the dollar.

On the other hand, a senior executive official in a large quantitative box believes that he is considered the possibilities of Evens – and that it does not matter much:

50/50. . . Trump is somewhat wins in both cases. If there is a bear market or stagnation, he can blame Biden and Powell, whether it divorces it or not. If there is no of them, he can take credit, whether he divorces him or not. . . If that happens, it will not be a surprise. The markets move on a surprise. I think talking about shooting already moves the market more than reality. I think that, if that happens, there is a brief. His replacement will be a key, and it will be the temporary default [John] Williams [chair of the New York Fed]And, which only involves more of the same

Another CIO asset manager believes that he is likely to be more than that:

Possibilities are greater than 50 percent. Trump has already shown that he does not look at these things while he is completely driven by revenge

In both cases, the damage is done. Expect constant pressure on the dollar, prices and external flows. Increasingly, foreign investors feel betrayal and will continue to allocate us away from us. [Foreign direct investment] It is a very simple hypothesis – 1) The rule of law 2) Political/structural stability 3) a reliable system to raise and arbitrate conflicts. Three strikes on the American front.

I think there is a lot of remaining damage, and that Trump will eventually get to know this, if it is not already. It is worth noting that betting markets put a 26 percent chance on Powell before the end of the year. I think this is very high.

One good reading

When the merger and purchase men manage the law firms, the law firms do what the government tells them to do.