US stocks plunged sharply Wednesday, amid increasing speculation that Donald Trump is preparing to fire Federal Reserve chair Jerome Powell.
This move led to alarm about the independence of the central bank and caused financial market turmoil before the White House denied media reports.
S&P 500 fell briefly by 0.6%, but recovered to end up with a gain of 0.32%.
Nasdaq Composite ended up 0.25% higher at 20,730.49 after a decline of as much as 0.8 percent. This was its ninth record closing for the year.
After falling by 264 points earlier, the Dow Jones Industrial Average gained 231,49 points or 0.53% to reach 44,254.78, a gain of 231,49 points.
The markets initially fell after multiple outlets including New York Times reported that Trump told Republican legislators he planned to fire Powell.
Trump had reportedly said that he would “likely” soon remove Powell as the Fed’s top official.
In a subsequent statement, Trump backed down on the threat and said it was “highly unlikely that he’d take immediate action.”
He said “No we don’t plan to do it,” but he added that “he doesn’t rule out anything”.
Investors were uneasy despite the recovery. Trump has repeatedly pressed Powell for weeks to cut interest rates. Most recently, he called for a reduction of 300 basis points.
Powell has said that the Fed’s policy would already have been eased if it weren’t for Trump’s tariffs, which created inflationary pressures.
Powell stated earlier in the month that “in effect, we were put on hold because we could see the magnitude of the tariffs. Essentially all the inflation forecasts have increased materially for the United States.”
Bank earnings were not much of a support. Bank of America shares, Goldman Sachs and Morgan Stanley’s all fell despite exceeding profit expectations, contributing to today’s cautious mood.
Expectations of a rate cut are on the increase
As uncertainty over Jerome Powell’s tenure at the Fed grows, it is more likely that the Federal Reserve will cut rates in September.
It follows several reports that President Donald Trump was actively considering the firing of Powell. Other reports suggested Powell might be considering resigning.
Trump denied such plans.
This shift in market expectations reflects this change in sentiment.
CME FedWatch shows that traders assign a probability of 56.1% for a cut in the Federal Funds Target to be 400-425 basis point after the FOMC’s September meeting.
It is up 150 basis points from yesterday.
The odds that rates will remain unchanged in the range of 425 to 450 basis points have fallen from 40.4% down to just 40.4%.
With a probability of only 1.5%, a deeper cut up to 375-400 basis points is considered highly unlikely.
The post US Stocks End Volatile Day in the Green: S&P Up 0.6%, Nasdaq Climbs 0.25% will be updated as new information becomes available.
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