Wall Street barely flinched on Wednesday after a bizarre morning in which Donald Trump reportedly showed lawmakers a letter firing Federal Reserve chairman, Jerome Powell, briefly dipping before regaining losses once the US president said a dismissal was “unlikely”.
Was Trump really considering firing Powell or just floating a distraction?
[ Will Donald Trump fire Jerome Powell? ‘I don’t rule out anything. But it’s unlikely. Unless …’ ]
With the Fed chair’s term ending in eight months and a dismissal likely to spark market mayhem, the smarter bet is on a bit of headline-chasing mischief that helped bump the Jeffrey Epstein scandal – which has riled Trump’s Maga base – off the front pages.
It may also have been a warning shot to Powell’s eventual successor: follow my lead and keep interest rates low or else.
RM Block
Still, the point that Trump keeps returning to these extreme ideas – sacking Powell, imposing large tariffs and other headline-grabbing gambits – should give investors pause.
Markets have bought into the Taco (Trump Always Chickens Out) trade. However, the man who coined that moniker, Financial Times columnist Robert Armstrong, now warns this leads to the Taco paradox: “The less the market believes Trump’s threats, the more likely they are to be true.”
That is, the risk is the Taco trade backfires – with markets’ casual response to Trump’s threats causing him to believe the sky will not fall when he actually does follow through with a reckless move.
It’s a dizzying feedback loop, but the lesson is clear: in trying to predict Trump’s moves, the market may be changing them, sometimes to its own peril.
