Analyst: If Trump Targets Powell, U.S. Economy May Fall Into Recession

Analysts from Evercore ISI state that any attempt by the Trump administration to dismiss Federal Reserve Chairman Powell "would lead to a surge in stagflation trades," although they believe such actions are "unlikely" to be realized. The movements in the bond and foreign exchange markets suggest that the markets have lost confidence in Trump's economic policies. However, there are currently no signs that the markets have lost confidence in the Federal Reserve, as indicators of expected inflation remain at low levels. Any actions that undermine the independence of the Fed would cause long-term yields to soar due to inflation risks, the yield curve to steepen sharply, the dollar to plummet, and various risk premiums, including equity risk premiums, to rise across the board, which could directly trigger an economic recession.