The market’s eyes are glued on the Fed Chairman Jerome Powell today for he’s about to deliver the most important speech of his term to date. The reason for this goes back to his comments made in October when he indicated that the Fed was not even close to stopping their interest rate hikes as they pursue their neutral interest rate policy.

This speech comes at a time when the market is in the middle of an uproar. Ever since the comments of the Chairman, the U.S. stock market has been all over the place and trembled around correction levels, and investors began to bet that the Fed will start to ease their hawkish stance.

According to Krishna Guha, head of global policy and central bank strategy at Evercore ISI, “The speech will continue the process of softening the Fed’s stance on the hawkish momentum.” However, those who are looking for a softer dollar are not in for a good time, as it doesn’t seem to be happening anytime soon.

Guha further added that Powell will likely reiterate that the Fed “will continuously reassess the extent of the rate path,” an important point amid concerns over global growth, an escalating trade war, and a possible slowdown in the U.S.

As things stand, the Federal Open Market Committee (FOMC) is planning to increase its benchmark interest rate by 25 basis points (0.25%) in December, putting the interest rate at a total of 2.50%. The Federal Funds Futures, which measures the probability of a rate hike, shows that a December rate hike has a 79% chance of occurring.

However, starting 2019 is when things become murky.

The FOMC Dot Plot is projecting three more hikes in 2019, while the market is expecting only one. This divergence is the product of multiple FOMC members who have expressed the notion of gradual rate hikes, only if the current economic conditions persist.

This is why things are not looking so clear in the long-term, in terms of interest rate hikes. The speech today is unlikely to indicate an explicit change of direction, and there are some anticipations that he may, at least, show a slower rate of increase as the market is hoping.

Powell’s Firing

The President of the United States, Donald J. Trump, is the person who appointed Jerome Powell as the Chairman of the Federal Reserve; in his latest comment for the Washington Post, he expressed that he is not happy with his selection, “not even a little bit”, which has put Powell in the crosshairs of the President, giving rise to some speculation that he might get fired.

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However, the issue is not clear cut, whether the President is allowed to let him go or not. Section 10 of the Fed Reserve Act says:

…each member shall hold office for a term of fourteen years from the expiration of the term of his predecessor unless sooner removed for cause by the President.

This provides extreme leeway for the President to cite a certain reason for the firing of Powell. However, Robert Hockett, a professor of law at Cornell Law School, said, “There would be no such thing as Fed independence or even a shadow of Fed independence if the Fed chairman could be fired.”

He added that “This is commonly understood as a severe, egregious or criminal act, not a disagreement with the monetary policy they are pursuing.”

There is a legal precedent on the topic that goes back to the 1940s, when President Franklin Roosevelt removed a member of the Federal Trade Commission and cited, as a reason, their different views of public policy. The Supreme Court unanimously reversed the firing, expressing that executives of independent agencies cannot be removed in their term of office except for just cause. These agencies “must be free from executive control,” the court ruled.

This should put the market at ease of Powell’s firing because if that were to happen, the market would have a positive knee-jerk reaction and climb higher; but in the longer run, an extreme reversal might happen as the market comes to grip with what happened.