Volatility in US equities surged to a 10-month high on Friday and US exchanges just reported the heaviest two-day volume since 2011.

Australian shares closed last week at a two-year low with the S&P/ASX 100 Index down 2.4 per cent to 5467.6. The Australian market was hit by ongoing worries about growth, a 'not dovish enough' Fed, a lack of new measures to address China's slowdown in a speech by President Xi Jinping and China-US trade war threats, AMP Capital chief economist Shane Oliver said.

Given all the currents swirling, traders didn't rule out a bounce in US stocks - whether on reflexive disdain for Powell's policies or simply because of the steepness of last week's decline. Betting on minute-to-minute swings has been a good way to go broke recently, with up-and-down moves in the Dow averaging about 700 points last week.

"The threat alone is highly unlikely to impact markets, which have become desensitized to all the noise and tweets from the White House," said Kristina Hooper, chief global market strategist for Invesco.

"After all, he's been complaining about him for months now. But I believe we'd see a strong negative reaction in markets if the President did in fact fire Powell since that sends a message that the Fed is no longer independent or apolitical."

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Trump has discussed firing Powell as his frustration rose following this week's rate hike and months of stock tumult, according to four people familiar with the matter. Advisers close to the President aren't convinced he would move against Powell and are hoping his anger dissipates over the holidays, the people said on condition of anonymity.

On Saturday, Treasury Secretary Steven Mnuchin said in a pair of tweets that he had spoken with the President about the matter and included a statement he said came from Trump. "I never suggested firing chairman Jay Powell, nor do I believe I have the right to do so," Mnuchin quoted Trump as saying. Earlier, White House Press Secretary Sarah Sanders said she doesn't know of a plan to fire Powell.

Markets would "erupt" if he did, said Nick Sargen, chief economist with Fort Washington Investment Advisors. "It would be construed as a loss of the Fed's independence, and the dollar would sell off along with stocks."

While warning against unnerving markets, analysts also acknowledged that Powell is unlikely to win any popularity contests among traders right now. His program of pushing up borrowing costs even as inflation expectations ease is blamed for exacerbating and even causing the meltdown in equities.

"The market had its worst week in 10 years because of Powell," said Jim Bianco, president of Bianco Research LLC in Chicago. Investors think he's "making a giant policy mistake. So Powell's approval rating on Wall Street is crashing like the Dow Jones," Bianco said. "If the stock market continues lower next week, the Fed's credibility will be in real trouble."

Asked if Trump's animosity will backfire and stiffen Powell's resolve, Bianco said: "No, I do not think the Fed will turn more hawkish, not at all. Right now they are huddled and discussing why the stock market sold off." He added: "They are worried about the market reaction to their FOMC meeting, not Trump."

Fed angst was at the centre of last week's market cyclone, in which the S&P 500 tumbled 7.1 per cent and the Nasdaq Composite Index became the biggest US equity gauge to enter a bear market since the financial crisis. The Federal Open Market Committee raised interest rates for the fourth time this year on Wednesday and Powell downplayed the role of market turbulence in setting policy, disappointing bulls who hoped for broader acknowledgement of their plight.

If the stock market continues lower next week, the Fed's credibility will be in real trouble.

Jim Bianco, president of Bianco Research

It's unclear how much legal authority the president has to fire Powell. The Federal Reserve Act says governors may be "removed for cause by the President". Since the chairman is also a governor, that presumably extends to him or her, but the rules around firing the leader are legally ambiguous, as Peter Conti-Brown of the University of Pennsylvania notes in his book on Fed independence.

"Seems like the story is running like wildfire," said John Spallanzani, portfolio manager at Miller Value Partners. "I have no idea if it's true. I trust Treasury Secretary Mnuchin and others in the administration to dissuade the president from taking such action."

Bloomberg