Trump's souring on Cohn has ominous implications for the one thing Wall Street cares about most

Gary Cohn’s mild, belated rebuke of his boss’ non-condemnation of Nazis following the violence in Charlottesville, Virginia, appears to have angered Donald Trump enough for the president to reconsider his choice to replace Janet Yellen as Federal Reserve chair.

“One White House official said the president visibly bristles at the mention of his economic adviser,” The Wall Street Journal reported.

Financial markets, for now inured to risks and uncertainty of any kind, don’t seem to have considered the full implications of Cohn’s souring relationship with the president.

Under normal circumstances, losing a career trader and former Goldman Sachs president as the likely Fed chair might be upsetting to investors, who see him as a brother in arms. The mere uncertainty surrounding the nature of a potential successor to Yellen would be unnerving.

But in Trump’s world, and as far as Wall Street’s agenda of deregulation and lower taxes for the wealthy and corporations is concerned, Cohn’s deteriorating relationship with the president may have even more ominous consequences.

After all, throughout the volatility that marks Trump’s whiplashing economic policy, Cohn has often been seen as the proverbial “adult in the room” and, importantly, a chief architect for much of the substance of Trump’s economic policies. His break with the president signals Trump’s tax cut plans are very much on the rocks, despite repeated assurances to the contrary from Treasury Secretary Steven Mnuchin.

It’s important to remember — yet often forgotten among the permabullish used-car sales crowd — that Trump’s original tax reform plans have already been dealt at least two considerable if not insurmountable blows. First, the failure of Trumpcare deprived fiscal hawks of the billions in savings that would have come from slashing government medical expenditures on the poor and elderly.

Second, the controversial notion of a border tax has been jettisoned, which creates even less budget headroom, under Congressional Republicans’ worldview, to cut taxes. Penn Wharton estimated revenues from that plan at around $US100 billion per year.

Even if Republicans were totally cool with a sharply higher budget deficit, there’s still not enough agreement within the party to expect much in the way of large-scale reform. Anything that does pass Congress will need support from deeply reluctant Democrats, freshly emboldened by a rookie president who just circumvented his own party to strike a curiously generous deal on the debt ceiling with the opposition.

“The very allies he would need to get that through he’s already alienated and now to put this debt ceiling fight again right into December, when you’re going to be talking about tax reform, I don’t get it,” Austan Goolsbee, economist at the University of Chicago and a former top advisor to President Barack Obama, told CNBC in an interview.

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