Heres how Wall Street is betting Trumps battle over the Fed will pan out

One of the most popular parlor games on Wall Street is focused on the battle between President Trump and Sen.Thom Tillis (R-NC) over the confirmation of Kevin Warsh as the new Federal Reserve chair, On The Money has learned.Mind you – I’m not sure how this high-stakes beef will pan out.

I’ve been covering Donald Trump for decades and I have a sense of when he’s bluffing and when he’s ready to fold.I do know that the president hates being dissed by anyone – including and especially a two-term senator. That said, the latest is that Wall Street thinks that Trump — despite saying this week that “I’ll have to fire [Powell], OK, if he’s not leaving on time” — will blink.Tillis, a powerful member of the Senate Banking Committee, says he won’t agree to send Warsh’s nomination to the full Senate (where Warsh would likely be approved on a party-line vote) because he thinks the White House’s probe of Fed Chair Jerome Powell over alleged cost overruns on its HQ renovation is bogus, an attempt to usurp the Fed’s status as an independent agency. Wall Street believes this principled stance and the fact that Wall Street wants an independent Fed will force Trump’s hand – and it amounts to a bet that Trump will ultimately be rational.

The last thing the president needs with midterms coming up, the Iran conflict and its disruption of oil supplies (sparking inflation), is for bond traders to start demanding higher interest rates on US debt because they think the White House will be controlling monetary policy and simply print money at will. Plus, Tillis isn’t budging.He recently told reporters it might be better for Powell to remain in his job on a temporary basis (which he will by law if Warsh isn’t confirmed when Powell’s term ends in a few weeks) than to have the president exert his influence over the agency.

Removing Powell could spark “mayhem” in the bond markets and those dreaded higher interest rates Trump wants to fall to spur...