Why Trump’s War Week Didn’t Break Markets | Prof G Markets

Quick Overview

Markets did not break following Trump's reported criminal investigation into Federal Reserve Chair Jerome Powell because the overwhelming consensus across finance, politics, and retail investors strongly supported Powell's independence, viewing the investigation as an unacceptable threat to the Fed's crucial role in maintaining economic stability.

Key Points: The investigation into Jerome Powell, allegedly centered on misleading Congress about Fed headquarters renovations, triggered swift backlash, with Jamie Diamond calling harm to Fed independence "probably not a good idea." The market initially sold off in futures but reversed losses by the end of the day and hit record highs the next day, indicating markets believe "Jerome Powell wins" against Trump. Widespread support for Powell came from former Fed chairs, major central banks, big bank CEOs like Jamie Diamond, and even Republicans, with Senator Tom Tillis stating the event questions the "independence and credibility of the Department of Justice." Meme stock traders on Wall Street Bets overwhelmingly supported Powell, with the most popular post calling him "an American hero," marking a cultural flip where institutions are being backed against perceived overreach. Scott Galloway argues that independent central banks are common to the world's most robust economies because politicians, regardless of party, have the temptation to lower interest rates to juice the economy, leading to inflation. Historical analysis shows that while stocks dip short-term (-2% over four weeks on average) during conflicts, long-term S&P returns over 12 months remain the same as during peacetime, suggesting long-term investors should not sell stocks for gold. The discussion highlighted that Trump's attempt to remove Powell from the Board of Governors is significant because the entire board sets rates, but Powell's demonstrated judgment means he retains the most influence regardless of title.

Context: The discussion centers on the immediate market and political reaction to reports that former President Donald Trump initiated a criminal investigation, led by the Justice Department, targeting Federal Reserve Chair Jerome Powell, ostensibly over testimony regarding Fed headquarters renovations. The conversation contrasts this challenge to Fed independence with other geopolitical actions taken by the Trump administration, such as the move in Venezuela, and explores broader investment implications regarding geopolitical instability and commodity markets.