Trump retracts threat to dismiss Fed Chair Powell, leading to a surge in the stock market.

United States President Donald Trump has moderated his earlier threats to dismiss Jerome Powell, the Chair of the Federal Reserve, after his previous remarks triggered significant declines in both the stock market and the value of the dollar. Trump’s latest comments, delivered on Tuesday, indicate a departure from the notion of immediate personnel changes within the central bank. Instead, he expressed a desire for Powell to adopt a more aggressive approach to interest rate adjustments.

During a press conference at the White House, Trump emphasized that he had no intentions of firing Powell, stating that while he would prefer more decisive actions regarding interest rates, the lack of movement was not a cause for alarm. His statement came at a crucial time when US stock futures experienced a notable increase, with the S&P 500 and the technology-focused Nasdaq-100 rising by over 1.70% and 1.90%, respectively.

The US dollar also saw gains against major currencies, with an increase of more than 1%. On the same day, Wall Street registered a strong rally. This positive momentum was further supported by comments from US Treasury Secretary Scott Bessent, who deemed a trade war with China as “unsustainable” and expressed optimism about the potential for a resolution between the two nations. Such sentiments were echoed by White House Press Secretary Karoline Leavitt, who indicated that the administration was making headway towards a favorable agreement with China.

Asian markets mirrored this optimism, with Japan’s Nikkei 225 and South Korea’s KOSPI opening higher, underscoring a global response to the renewed confidence in US economic policy. However, the backdrop remains complex, as the US and China are currently engaged in a significant trade standoff, with Trump previously imposing tariffs as high as 145% on Chinese goods, actions that elicited retaliation from China.

Despite the optimism surrounding potential negotiations, Trump’s critical stance towards Powell has raised concerns among investors regarding the Federal Reserve’s independence, a key element deemed essential for sustaining the US economy’s overall health. Financial markets reacted negatively to Trump’s past characterizations of Powell, prompting worries over the implications of such political interference in monetary policy.

The Federal Reserve, which last lowered the benchmark interest rate in December, has maintained a cautious approach to further reductions, primarily due to fears that ongoing tariffs could elevate inflation levels. Powell, initially appointed by Trump and later re-nominated by President Joe Biden, has consistently indicated that he would not resign and can only be removed under specific legal circumstances. Any move to transition Powell out of his role prior to the end of his term could disrupt market confidence, prompting predictions of dramatic fluctuations in the stock and bond markets that may lead to broader economic repercussions.

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