(The opinions expressed here are those of the author, a

columnist for Reuters.)

By Jamie McGeever

ORLANDO, Florida, July 17 (Reuters) - Whether Federal

Reserve Chair Jerome Powell is fired next week, forced to resign

in six months or allowed to muddle through to the end of his

term next May, the supposedly sacrosanct notion of Fed

independence has already been shattered.

Yet what's nearly as remarkable as President Donald Trump's

attacks on Powell for not cutting interest rates is financial

markets' resilience in the face of this extraordinary degree of

political interference in monetary policy, unprecedented in

recent decades.

Equity investors are known for being optimists, but today's

Wall Street is veritably Teflon-coated.

Of course, Trump's attacks on Powell have not been without

consequence. The dollar has clocked its worst start to a year

since the United States dropped the gold standard in the early

1970s. Long-dated Treasury yields are the highest in 20 years,

and the "term premium" on U.S. debt is the highest in over a

decade.

Consumers' inflation expectations, by some measures, are

also the highest in decades. Inflation has been above the Fed's

2% target for over four years, and the prospect of a dovish Fed

under the stewardship of a new Trump-friendly Chair could keep

it that way.

But that's not solely down to Fed policy and credibility

risks. The Trump administration's fiscal and trade policies, and

unilateralist position on the world political stage, have also

tempted some investors to trim their exposure to U.S. debt and

the dollar.

Still, Wall Street seems immune to all that, and it closed

in the green on Wednesday after Trump played down a Bloomberg

report that he will soon fire Powell, a step he says is "highly

unlikely". Even at the point of maximum selling before that

rebuttal, the big U.S. equity indices were down less than 1%.

Given the magnitude of the news investors were reacting to,

that's barely a ripple, especially when you remember that the

S&P 500 and Nasdaq hit record highs only 24 hours earlier.

Indeed, the S&P 500 is enjoying its third-fastest rebound

from a 20% drawdown in history, according to Fidelity's Jurrien

Timmer. Goldman Sachs analysts also note that the index's

price-to-earnings ratio of 22 times forward earnings is in the

97th percentile since 1980. And the Nasdaq is up 40% in barely

three months.

Taking all this into account, there's plenty of space for a

correction. What's needed is a catalyst. Threatening the

foundation of the financial system would seem to qualify, but

will it?

BECOMING IMMUNE

One might argue that investors are simply skeptical that

Trump really will oust Powell, even were it "for cause",

ostensibly the Trump administration's ire over the $2.4 billion

cost of renovating the Fed's building in Washington.

But Trump has made it clear for months that he wants Powell

replaced by someone more malleable, so whether it happens in the

coming weeks, months, or May next year, the new Fed Chair will

almost certainly be someone strongly influenced by the

president.

Of course, the Fed Chair is only one of 19 members of the

Federal Open Market Committee and just one of 12 voting members

at any given rate-setting meeting. He or she does not decide

policy unilaterally. Still, the negative reaction to Powell

leaving before his term is up could be powerful, even though you

would expect it to be priced in to some extent by now.

All else being equal, a more dovish-leaning Fed will

reasonably be expected to weigh on short-dated yields, steepen

the yield curve, and weaken the dollar as bond investors price

in more rate cuts, and keep inflation closer to 3% than 2%. In

the short term, stocks could benefit from expectations of a

lower policy rate, although higher long-dated yields would

increase the discount rate, which could be particularly negative

for Big Tech and other growth stocks.

JP Morgan CEO Jamie Dimon on Tuesday warned of the dangers

of political interference in Fed policymaking, telling reporters

on a conference call: "The independence of the Fed is absolutely

critical. Playing around with the Fed can often have adverse

consequences, absolutely opposite of what you might be hoping

for."

That Rubicon has already been crossed, and for now at least,

markets appear to have accepted that.

(The opinions expressed here are those of the author, a

columnist for Reuters)