Did Powell Just Cut a Deal?

Bloomberg reported Friday that Trump is considering firing Powell. Mnuchin denied it Saturday, quoting Trump – but Trump himself has been silent. The pattern of events suggests to us that Mnuchin has worked out a deal with Powell between Friday and Saturday, to change policy course and/or to resign with dignity. Either one – or even an outright firing – would trigger a substantial risk-on rally, with stocks at cheap valuations not seen since before the 2016 election, indeed, the equity risk premium is within basis points of the highest seen since the end of the Global Financial Crisis. Powell has lost the markets’ confidence that there is a “Powell put,” and Trump can restore confidence by dealing with him one way or the other. If fired, Clarida would step in temporarily and could make a better permanent chair if nominated and confirmed. Kudlow and Hassett are excellent internal White House candidates, both with proven good relationships with Trump, and both with a strong pro-growth orientation.