On Tuesday (April 22), US President Trump suddenly changed his tone and publicly stated that he had no intention of dismissing Federal Reserve Chairman Powell. This statement was like injecting a "shot in the arm" into the financial market, and US stock futures jumped nearly 2% in response. This months long 'battle to defend the Federal Reserve Chairman' seems to have reached an important turning point.

Attitude softening

According to Refinitiv, during an interview in the Oval Office, Trump made it clear on Tuesday (early Wednesday morning Beijing time) that "I have no intention of firing him," but then added that he hoped Powell would be "more proactive" in cutting interest rates. Trump said, "We believe that now is the perfect time to cut interest rates, and we hope to see our chairman cut rates early or on time, rather than delaying them

This is the first time since taking office in January that Trump has publicly retracted his threat to dismiss Powell. On Monday, he angrily criticized Powell on social media for being "too slow to act", causing a severe market shock.

Market Reaction

This statement immediately received a warm response from Wall Street. Trump's speech was delivered after the closing of the US stock market on Tuesday. During the morning session in Sanya, US stock index futures rebounded strongly, with the S&P 500 index futures rising more than 2% at one point. Market analysts have analyzed that the Federal Reserve's independence crisis, which investors are most concerned about, has been temporarily resolved, coupled with Trump's positive signal on the US China trade negotiations, forming a dual positive situation.

The US dollar index also continued its Tuesday rally on Wednesday, reaching a high of 99.89, a new high in nearly a week, with an increase of about 0.93%. Currently, it has slightly fallen to around 99.16.

Root cause of contradiction

It is worth noting that despite the withdrawal of the dismissal threat, Trump's criticism of monetary policy remains sharp. He insists that 'now is the perfect time to cut interest rates' and urges the Federal Reserve to' act early rather than delay '. This contradictory attitude stems from a knot during his tenure - Powell, whom he personally nominated in 2018, continued to raise interest rates, leading to the breakdown of their relationship. Although there is controversy in the legal community over whether the president has the power to dismiss, Trump has consistently claimed to be able to "quickly" replace the Fed chairman.

policy game

The latest interest rate futures show that traders have lowered their expectations for interest rate cuts within the year, from four times to three times, each by 25 basis points. This reflects that the market is reassessing the independence of the Federal Reserve's policies, and despite pressure from the president, the Fed may still maintain its established pace. At present, the federal funds rate remains in the range of 4.25% -4.50%, and Powell's team chose to remain inactive in both interest rate meetings after Trump's return to the White House.

Interest rate futures show that the probability of the Federal Reserve cutting interest rates in May is less than 5%, and after Trump's speech, the market's probability of the Fed cutting interest rates in June has decreased from 78% the day before to 67%.

Analysts point out that the real determinant of the trend of the US dollar is still the interest rate policy of the Federal Reserve. If Powell withstands pressure, the US dollar may maintain a relatively strong rebound trend; If the interest rate cut comes early, the US dollar may continue its downward cycle. Investors need to closely monitor changes in the wording of the Federal Reserve's May interest rate meeting and subsequent economic data.

Federal Reserve Governor Adriana Kugler stated on Tuesday that due to significantly higher than expected US import tariffs and potential upward pressure on prices, the Fed should maintain short-term borrowing costs unchanged until inflation risks dissipate.