17.07.202509:05 Forex Analysis & Reviews: The Market Stands Firmly Behind the Fed

Trump always backs down. And the U.S. President skillfully manipulates the markets. It is quite possible that the rehearsal for firing Jerome Powell was his idea. The goal was to observe how stock indices would react to the dismissal of the Fed Chair. And it must be said—the rehearsal was a success. The S&P 500 rollercoaster was captivating, but in the end, investors did what they were supposed to do—they bought the dip.

S&P 500 Reaction to Rumors of Jerome Powell's Dismissal

The stock market plunge forced Donald Trump to clarify the situation. He claimed he merely asked officials in the U.S. administration how they would feel about dismissing Jerome Powell. Nothing more. The responses supposedly revealed that the president was more conservative than his team. As a result, rumors of Powell's resignation leaked to the press, which shook the markets. For a while, the slogan "sell America" became popular again. The S&P 500 and the U.S. dollar dropped, and Treasury yields fell.

Then came the moment to buy the dip. Donald Trump announced he had no intention of removing Jerome Powell from his post—unless signs of misconduct were found in his activities. Stock indices quickly regained lost ground.

In my opinion, the markets view the Fed Chair's resignation as an unlikely yet significant event. Even the latest dismissal rumors did not raise the probability of such an outcome above 25% on Polymarket.

Probability of Jerome Powell Being Removed from Office

I don't believe financial market turmoil is part of the White House's plan. And what would a new or shadow Fed Chair change anyway? Decisions at the FOMC are made collectively. Most members of the Federal Open Market Committee are leaning toward caution. According to New York Fed President John Williams, rates are in the right place. If not for the tariffs, U.S. inflation would already be back at 2%.

But for now, inflation remains at a higher level. The Producer Price Index (PPI) rose 2.3% year-over-year in June. On a monthly basis, there was no increase. Based on CPI and PPI data, the Fed's preferred inflation indicator, the PCE, is expected to come in at 2.7% or 2.8% in June, unchanged from May's 2.7%. These figures, coupled with a still-strong labor market, clearly fall short of justifying a federal funds rate cut in July, no matter how much Trump wants it.

The market shock triggered by the U.S. President is gradually subsiding. Attention is returning to trade wars and the corporate earnings season. The White House's distribution of around one hundred letters to small countries listing 10–15% tariffs has helped calm investors by increasing policy clarity.

Technically, a pin bar with a long lower shadow has formed on the S&P 500 daily chart. As a general rule, the longer the shadow, the greater the likelihood that the asset will move in the opposite direction. This allows traders to enter long positions on a breakout above the pin bar's upper point at 6270.