Wall Street down 1% as markets weigh Powell removal risk

US stocks markets reopen Monday after the extended weekend having closed higher Thursday but down overall last week.

Jitters for the new week have been ignited by comments made by Donald Trump’s top economist Kevin Hassett, director of the National Economic Council, who said Friday that the president is considering whether he is able to fire Fed chair Jerome Powell.

During a press conference in the Oval Office during last Thursday’s visit of the Italian prime minister, Trump as asked if he could remove Powell. Trump, who is frustrated that the Fed has not cut interest rates fast enough responded: “If I want him out, he’ll be out of there real fast, believe me,” adding “I’m not happy with him.”

“The Commander in Chief wants the central bank leader to follow in the footsteps of the ECB, which reduced its key benchmark by 25 bps [Thursday] morning. The disagreement offers market participants déjà vu similar to the Head of State’s first term, when he would get upset that the institution wouldn’t lower short-term rates,” said José Torres, Senior Economist at Interactive Brokers.

The threat to the central bank’s independence, along with taking greater control of some key boards and agencies including the SEC and CFTC, appears to be in the Trump administration’s sights, but critics warn of the consequences.

Speaking on CBS’ Face the Nation, Austan Goolsbee, Chicago Fed president, said Sunday that: “There’s virtual unanimity among economists that monetary independence from political interference — that the Fed or any central bank be able to do the job that it needs to do — is really important.”

As of 5am ET Monday, US market futures are down around 1% across the S&P 500, Dow Jones, and Nasdaq, while Asian markets are generally higher with Tokyo a notable exception. Australian, New Zealand, UK and European markets are closed for the extended Easter holiday.  Canadian markets will be open.

The US dollar is weaker and may fall further if the independence and credibility of the Fed continues to be in question.

Win Thin, global head of markets strategy at Brown Brothers Harriman & Co., opined in a client note that: “We believe dollar weakness will continue. The attack on Fed independence is intensifying. The admission that this is being studied at all should be taken very seriously and very negatively.”

Meanwhile, 10-year Treasuries yield rose three percentage points and the US curve steepened.