NEW YORK (Reuters) -Investors are becoming more measured in their reaction to news about Trump's Washington policy, with Wednesday's whipsawing headlines over Federal Reserve Chair Jerome Powell triggering a reaction that fell short of what could happen if the Fed chair was indeed fired.

The S&P 500 briefly fell as much as 0.7% and the dollar sank 0.9% on Wednesday following reports Trump was close to firing Powell.

To some investors, the initial knee-jerk moves - soon to be unwound as Trump denied he was planning Powell's ouster from the Fed - seemed relatively shallow and pointed to investors being unwilling to put too much stock in headlines involving Trump administration policy. 

Part of the reason for the market's reaction is that investors have learned from experience that news headlines about potential actions by the Trump administration can change rapidly, market participants said.

"I think there is a group of people who thought it was a trial balloon," Thierry Wizman, global FX and rates strategist at Macquarie in New York, said.

"That it was not serious, that it was just Trump testing the market and that if the market fell too much, he would change his view in any case so there's no reason to bid stocks down excessively," he said.

The White House declined to comment on whether Trump was testing the market, instead pointing to his remarks earlier in the day where he said he is not planning to fire Powell even as he unleashed a fresh round of criticism against the central bank chief and declined to completely reject the possibility of ousting him.

Trump, who in the past has suggested he could fire Powell, has also at various times said he would not do so.

Bloomberg News, which first reported Trump was planning to fire Powell soon, did not immediately respond to a request for comment. 

"We don't know if Trump will follow through on the threat," Brian Jacobsen, chief economist at Annex Wealth Management, said.

The many twists and turns in U.S. tariff policy since the start of the year have already inured investors to abrupt changes in policy.

"Traders and investors have learned to take political posturing with a grain of salt," said Karl Schamotta, chief market strategist at Corpay.

The limited reaction, especially in stock markets, also points to some investors seeing Powell's potential ouster as clearing the path for rate cuts, some analysts said.

"There is an element of the market that wants to see lower rates in the short term ... they're happy to have the Fed cut," Wizman said.

Worries over the Fed's independence notwithstanding, lower rates would reduce borrowing costs for companies, potentially encouraging investment and boosting corporate profits, while also making stocks relatively more attractive compared to lower-yielding bonds and savings.

"Perhaps there are some traders who like the idea of lower rates more than the loss of independence," Steve Sosnick, chief strategist at Interactive Brokers, said.

'MINI-TANTRUM'

Still, market participants warned that Wednesday's market gyrations, fleeting as they were, offered a glimpse on how global financial markets might react should Powell be ousted.

"This morning's mini-tantrum provided the administration with a clear warning of the negative consequences," Schamotta said.

"Today's episode provided a tiny taste of the cataclysmic moves that could unfold if the Trump administration actually moved forward with untethering the world's monetary anchor," he said.

Investors had been on edge for weeks about the prospect of Powell being removed from his job before his term ends next May, as Trump has repeatedly criticized him for not cutting U.S. rates quickly enough.

Even if Trump doesn't fire Powell, just nominating a successor - something Trump has said he is considering - would trouble the market, investors said.

The nomination of the next Fed Chair so far in advance of the end of Powell's term would create the likelihood of a "shadow" Fed chair who offers potentially clashing views with the sitting central bank leader on monetary policy. This could potentially sow confusion in the market about the outlook for monetary policy, investors said.

Such threats to the Fed's perceived independence could push investors to lighten exposure to dollar-denominated assets and revive the worries about investing in America that surfaced earlier this year when Trump first slapped hefty tariffs on global trading partners, strategists said.

"This is part and parcel of the thing we've already been growing accustomed to," Macquarie's Wizman said.

"It's a theme that has weakened the dollar since the beginning of the year. It's a theme that has caused long-term yields to go up," he said.

For now, investors remain on edge about whether Trump will end up firing Powell.

"Trump in particular seems to take umbrage at the idea that he doesn't follow through on some of these things. So it wouldn't surprise me if they did. It wouldn't surprise me if they didn't," said Rick Meckler, a partner at Cherry Lane Investments in New Vernon, New Jersey.