By Saqib Iqbal Ahmed
NEW YORK (Reuters) -Investors are becoming more measured in their reaction to news about Trump’s Washington policy, with Wednesday’s whipsawing headlines over Federal Reserve Chair Jerome Powell triggering a reaction that fell short of what could happen if the Fed chair was indeed fired.
The S&P 500 briefly fell as much as 0.7% and the dollar sank 0.9% on Wednesday following reports Trump was close to firing Powell.
To some investors, the initial knee-jerk moves – soon to be unwound as Trump denied he was planning Powell’s ouster from the Fed – seemed relatively shallow and pointed to investors being unwilling to put too much stock in headlines involving Trump administration policy.
Part of the reason for the market’s reaction is that investors have learned from experience that news headlines about potential actions by the Trump administration can change rapidly, market participants said.
“I think there is a group of people who thought it was a trial balloon,” Thierry Wizman, global FX and rates strategist at Macquarie in New York, said.
“That it was not serious, that it was just Trump testing the market and that if the market fell too much, he would change his view in any case so there’s no reason to bid stocks down excessively,” he said.
The White House declined to comment on whether Trump was testing the market, instead pointing to his remarks earlier in the day where he said he is not planning to fire Powell even as he unleashed a fresh round of criticism against the central bank chief and declined to completely reject the possibility of ousting him.
Trump, who in the past has suggested he could fire Powell, has also at various times said he would not do so.
Bloomberg News, which first reported Trump was planning to fire Powell soon, did not immediately respond to a request for comment.
“We don’t know if Trump will follow through on the threat,” Brian Jacobsen, chief economist at Annex Wealth Management, said.
The many twists and turns in U.S. tariff policy since the start of the year have already inured investors to abrupt changes in policy.
“Traders and investors have learned to take political posturing with a grain of salt,” said Karl Schamotta, chief market strategist at Corpay.
The limited reaction, especially in stock markets, also points to some investors seeing Powell’s potential ouster as clearing the path for rate cuts, some analysts said.
“There is an element of the market that wants to see lower rates in the short term … they’re happy to have the Fed cut,” Wizman said.
finance.yahoo.com
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