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COULD THE TRUMP-POWELL CLASH CAUSE A FINANCIAL CONSTITUTIONAL CRISIS?

Investors are facing another layer of risk when it comes to President Donald Trump's ongoing public dissatisfaction with Fed Chair Jerome Powell.

As Mike O'Rourke, chief market strategist at JonesTrading, sees it, the financial and economic framework that has existed for decades is being put to the test, and he thinks it's naive to believe there won’t be disruption.

"The current tariff plans will slow the global economy, and with each passing day, retaliation risk rises. Now the President appears intent on taking over the Federal Reserve, violating the foundational principle of central bank independence," writes O'Rourke in his "Closing Print" note out late Wednesday.

O'Rourke has been staunchly critical of Powell. For example, he doesn't think Powell "was a hero for bailing out levered macro hedge funds in March of 2020 by buying hundreds of billions of Treasuries at yields below 0.6%."

He adds that Powell altered the Federal Reserve’s framework to create additional inflation in the midst of the 2020 pandemic.

O'Rourke says that the Fed then added $4.5 trillion to its balance sheet over two and a half years, and it was still buying assets as inflation was surging.

"President Trump is correct: he is always 'too late,' especially when it comes to tightening."

That said, O'Rourke outpoints that during Powell’s tenure as Fed Chair, the S&P 500 .SPX has compounded at 14.1% per year vs 11.7% over the past 50 years. Thus, "His being 'too late' has benefited equity investors."

In any event, regardless of his status as chair, Powell can exercise his right to stay as a Governor, which could undermine his successor. In fact, O'Rourke thinks Powell might stay his entire term as Governor simply to "slow the further politicization of the central bank."

Will Powell’s successor have the respect of their colleagues at the Federal Reserve? Will monetary policy split decisions become the norm?

O'Rourke's bottom line is that "We can envision the next Fed Chair being outvoted frequently simply due to the manner in which this is being handled. If the nation continues on this path, we risk facing the financial version of a constitutional crisis."

(Terence Gabriel)

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EARLIER ON LIVE MARKETS:

INTERNATIONAL STOCKS STILL LOOK ATTRACTIVE OVER U.S. EQUITIES CLICK HERE

SMOKE AND MIRRORS: RETAIL SALES, JOBLESS CLAIMS, IMPORT PRICES, ET AL CLICK HERE

S&P 500, NASDAQ ON TRACK FOR FRESH RECORD CLOSES CLICK HERE

WITH TECH ON A TEAR, NASDAQ LEAPS TO THE TOP OF THE HEAP CLICK HERE

GOLD NEEDS A NEW CATALYST CLICK HERE

DOLLAR REBOUND COULD STALL ON POWELL FUTURE CLICK HERE

INDUSTRIALS AND CHIPS DRIVE STOXX BOUNCE CLICK HERE

BEFORE THE BELL: POWELL ASIDE, EARNINGS RETAKE CENTRE STAGE CLICK HERE

MARKETS STOIC OVER POWELL'S SHIFTING FATE CLICK HERE