Donald Trump again in the center of attention! This time in the White House, there was a stormy debate about the fate of one of the most powerful men of the American economy – the chief of the Federal Reserve (Fed) Jerome Powell.
Presidents Anger and Secret Meetings
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On Tuesday, an oval office took place like a political thriller. President Trump directly asked groups of Republican congressmen: “Should I throw Jerome Powell?” Reaction? According to several sources, the present nodded enthusiastically, and Trump indicated that this would happen.
The next day, on Wednesday, Trump confirmed to journalists that he had actually talked to MEPs about this idea. “I talked to them about the concept of his release. I asked, ‘What do you think?’ Almost everyone said I should.
Sources close to CBS News confirmed that these interviews took place on Tuesday evening, shortly after the Republicans in the House of Representatives blocked a procedural vote on the cryptocurrency legislation that Trump supported. Is it just a coincidence or a remuneration?
Legal puzzle and a shock of financial markets
The idea that the President could withdraw the Fed chief is legally unexplored land. The Federal Act provides that the President can only be released for “for a legitimate reason”. If this happened, this could have serious negative impacts on the financial markets that pride themselves on the independence of the central bank.
Trump’s anger against Powell is not only focused on cryptomains. The President blames him for too slowly reducing interest rates and nicknamed “Mr. too late”. On Tuesday he even called him “terrible”, “complete biscuit” and compared it to a “chair” that cannot be talked to.
In addition, allegations of “spectacular” renovations of the Fed’s headquarters in Washington are spread. Director of the Office for Management and Budget Russian Vought sent a letter to Powell in which he was accused of violating the law. Powell described these allegations as “misleading and inaccurate”.
The administration is trying to create a legal “assumption for an appeal for a legitimate reason”, but has not yet been formally.
Fed’s independence in danger?
For decades, the Fed enjoyed a high degree of independence from the rest of the government, allowing him to make decisions on monetary policy with minimal interference of politicians. It is this independence that is crucial for the trust of markets.
Republican Anna Paulina Luna, who voted against cryptomains legislation, even wrote on Tuesday evening on Social Network X: “I hear Jerome Powell is thrown away! From a very serious source.” Later she added: “I am 99 % sure that the appeal is immediate.”
Judicial precedents and future steps
Although Trump claimed in June that Powella would not withdraw, he escalates the tension between them. The US Supreme Court recently indicated that Trump does not have the authority to dismiss the Fed chief as it is
“Uniquely structured, quasi-private subject”. If the appeal were to be appealed, it would immediately trigger a legal battle.
The situation around Jerome Powell is tense and uncertain. How will this drama develop and what impact will it have on the US economy and world markets? We’ll watch it carefully.
Germany is slowly awakening
For many years, Germany has been a model of fiscal discipline. However, the situation is changing, especially in connection with the unclear attitude of Donald Trump to Ukraine and its challenges, to take more responsibility for Europe. These events awakened the sleeping giant.
Germany embarks on extensive fiscal reform. The 500-billion infrastructure fund and a significant increase in defense expenditure will be bypassed by strict German debt brake rules. Informs the portal Euronews.com. While investors are absorbing the consequences, European events are growing, defensive events are experiencing a boom, and economists are talking about a “fundamental change” for the long stagnant growth of Germany.
The CDU/CSU and SPD coalition promotes an unprecedented fiscal package, including an extra -budget infrastructure fund of EUR 500 billion (11.6 % of GDP in 2024) for the next ten years. Defense expenditures exceeding 1 % of GDP will be exempt from debt brake, which will release an additional EUR 11 billion per year. Bundestag has only a short time to approve the package before the new parliament meeting 25 March.
New era for European events led by a defense sector
This vigorous fiscal expansion strengthens investor optimism. The DAX index has increased by 16 %since the beginning of the year, while defensive events are the biggest winners. ETF Stoxx Europe Aerospace & Defence has risen by more than 40 %.
The President of the European Commission Ursula von der Leyen recently identified the current time as the “era of the version”. The shares of German companies Hensoldt Ag and Rheinmetall AG fired 112 % and 95 %, while French Thales strengthened by 78 % and Italian Leonardo Spa scored 77 %. Both Goldman Sachs and Abn Amro see the potential to revive the German industry in this step.
Growth outlook of Germany and euro area revised upward
Fiscal expansion also changes economic forecasts. Goldman Sachs revised its growth forecasts for Germany with the expectation of an increase in GDP in 2025-2027. Carsten Brzeski from Ing said “a fiscal stimulus of EUR 500 billion could increase German growth by more than one percent per year,” and described it as a “historical turn”. Bank of America described the reform as a “fundamental change”, with a growth potential of 1.5 % to 2 % per year by 2027.
The wider euro area is also expected to feel the benefit. The European Central Bank is now facing a more difficult situation. Goldman Sachs believes that he will have to reconsider his trajectory of rate reduction.
