US President Donald Trump has said he has no intention of firing Federal Reserve Chair Jerome Powell.
This stark change comes days after President Trump intensified his criticism of Mr Powell saying his 'termination cannot come fast enough' and calling him 'a major loser' for not cutting interest rates to offset the inflationary impact of the new tariffs.
The de-escalation drew an immediate thumbs up from Wall Street, as equity index futures jumped by nearly 2% on the resumption of trading yesterday.
However, President Trump's criticism of the Fed rate policy remains pointed.
He told told reporters in the Oval Office yesterday that he would like to see Mr Powell be "a little more active in terms of his idea to lower interest rates."
"We think that it's a perfect time to lower the rate, and we'd like to see our chairman be early or on time, as opposed to late," said President Trump.
Speaking on RTÉ's Morning Ireland, Associate Professor of Economics at Trinity College Dublin Davide Romelli said he believes President Trump was using the tactic of threats and criticisms to test the market and see how it would react.
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"We have seen that this is the strategy during this second mandate. He has done so during the tariff debate and now he's doing the same the attack on Jerome Powell," said Dr Romelli.
While the president has now said he has no intention to fire Mr Powell, it remains unclear if he has the authority to do so.
The Federal Reserve Act of 1913 establishing the Fed stipulates that members of its Board of Governors, appointed by the president and confirmed by the Senate to staggered 14-year terms, can be only be removed for "cause" - long thought to mean misconduct, not policy disagreement.
That said, the law omits reference to limits on removal from its description of the four-year term of the Fed chair, who is one of the seven governors.
"In theory, yes he has the authority. If we look at the Federal Reserve Bank Act, the president can dismiss the Chair of the Fed for cause, but we have seen that the law can be interpreted in different ways," said Dr Romelli.
"So in theory we might face the firing and probably only the market participants and financial markets will introduce some limit on this."
The Fed has not cut interest rates so far this year, a stance that has been heavily criticised by Mr Trump.
However, the Fed Chair remains seen as a steady voice in an incertain environment.
"It's certainly seen as a key reference among economists and market participants. They know that as long as the Fed remains independent there will at least be an attempt to maintain price stability and not boost the economy with expansionary monetary policies that might bring higher inflation," said Dr Romelli.
Additional reporting Reuters
