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Via Bloomie over the weekend:

President Donald Trump has discussed firing Federal Reserve Chairman Jerome Powell as his frustration with the central bank chief intensified following this week’s interest-rate hike and months of stock-market losses, according to four people familiar with the matter.

Advisers close to Trump aren’t convinced he would move against Powell and are hoping that the president’s latest bout of anger will dissipate over the holidays, the people said on condition of anonymity. Some of Trump’s advisers have warned him that firing Powell would be a disastrous move.

Yet the president has talked privately about firing Powell many times in the past few days, said two of the people.

…It’s unclear how much legal authority the president has to fire Powell. The Federal Reserve Act says governors may be “removed for cause by the President.” Since the chairman is also a governor, that presumably extends to him or her, but the rules around firing the leader are legally ambiguous, as Peter Conti-Brown of the University of Pennsylvania notes in his book on Fed independence.

It would not come entirely as a shock given the number of senior folks already boned. Nonetheless, we can expect the first round of reactions to include stocks crashing and bonds soaring even in the US. One can only assume that if it did happen then a ready made replacement would be parachuted in so the shock would be brief as market fear turned quickly to greed at a dovish new chair. The bond curve would then steepen.

The forex response might initially be a stronger US dollar as risk retreated violently but if the market turned swiftly to embrace a newly dovish monetary regime then the US dollar is likely to fall away pretty fast.

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Longer term, the US could potentially face sovereign downgrades bringing the twin deficits to bear on the currency. Not to mention an endless uber-scandal engulfing Washington with all kinds of unpredictability including constitutional crisis and impeachment. It would be a blow to the US dollar safe haven status over the long run.

Thus, one likely immediate winner regardless of the direction of the US dollar will be gold as the fiat system shudders. Indeed, such an event would structurally entrench gold as essential portfolio insurance and lift it permanently.

Overall, such an event is likely to put upwards pressure on the Australian dollar over time.

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As we wake this morning, the White House is rapidly walking back the comments. Steven Mnuchin tweeted on the weekend:

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And Trump new chief of staff added overnight:

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.