Will Trump End Up Firing Fed Chair Powell?
Markets jitter as Trump dangles possibility of removing central bank chief Jerome Powell.
President Donald Trump insists he’s “highly unlikely” to fire Federal Reserve Chair Jerome Powell. But even the possibility has sent tremors through financial markets and sparked fresh debate about the independence of the U.S. central bank.
This week, reports emerged that Trump waved a draft termination letter in front of Republican lawmakers during a closed-door meeting. The news sent stocks reeling, bond yields rising, and the dollar falling, until Trump stepped in hours later to calm markets, sort of.
“I don’t rule out anything, but I think it’s highly unlikely, unless he has to leave for fraud,” Trump said in the Oval Office on Wednesday, in reference to a controversy over a $2.5 billion renovation project at the Federal Reserve’s Washington, D.C., headquarters.
Independence Under Fire
The central issue isn’t just whether Powell stays or goes; it’s whether the president should have the power to remove a Fed chair over policy disagreements. Analysts warn that such a move could upend the credibility of the U.S. financial system.
“There are a lot of bad ideas out there,” said Roger Altman, former deputy Treasury secretary under President Bill Clinton, on CNBC’s Closing Bell. “But the president firing the chairman of the Fed, or, should I say, trying to fire him—that’s among the worst ideas.”
Altman pointed to the economic instability in countries like Turkey and Argentina, where political interference in monetary policy has contributed to runaway inflation and market chaos. “I don’t think Chairman Powell would accede to a request that he leave,” he added.
Legal Minefield Ahead
Should Trump attempt to remove Powell, the matter would likely land in court. A research note from Wolfe Research outlined three potential legal scenarios, none of which are clean.
“If Trump moves to actually fire Powell rather than just pressure him to resign, Powell would presumably sue to stop it,” analysts Tobin Marcus and Chutong Zhu wrote.
That’s because Powell, unlike commissioners of most independent federal agencies, heads the Fed and doesn’t report to any higher authority within the institution. There is no one inside the Fed authorized to carry out a presidential firing order. In other words, it’s uncharted legal territory.
In a striking scenario raised in the report, Powell could theoretically resist leaving, prompting the White House to attempt enforcement, perhaps even calling on law enforcement to remove him from the building. “Needless to say, Powell being escorted out of the Fed by either D.C. police or federal law enforcement would be a worrying image for markets,” the Wolfe analysts warned.
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Markets on Edge, But Not in Freefall
Despite the initial jolt, Wall Street seemed to recover quickly. Stocks remain near record highs, and the dollar stabilized after Trump’s clarification. But not everyone sees calm waters ahead.
George Saravelos, global head of FX strategy at Deutsche Bank, wrote that the potential removal of Powell would be “a direct affront to Fed independence,” adding, “In extreme cases, both the currency and the bond market can collapse as inflation expectations move higher.”
The brief volatility in bond and currency markets Wednesday morning bore that out. Long-term Treasury yields spiked, gold rose, and the dollar slipped nearly 1%, a classic risk-off response.
Political Calculus or Economic Strategy?
Trump’s motivations aren’t exactly hidden. For months, he’s criticized Powell for not slashing interest rates. “I think he’s not doing a good job,” Trump said Wednesday. “He’s got a very easy job to do. Know what he has to do? Lower interest rates.”
Yet economists argue that even if Powell were removed, the Fed wouldn’t immediately pivot toward Trump’s preferred monetary policy. In fact, it might do the opposite.
“There’s no way that Donald Trump is going to intimidate Jay Powell into doing something he doesn’t want to do,” former Fed Vice Chair Donald Kohn said.
Further complicating matters, replacing Powell would take time. The president would need Senate confirmation for a new chair—a daunting task with lawmakers on both sides defending the Fed’s autonomy. Until then, the Federal Open Market Committee could appoint a temporary chair from within, preserving Powell’s current rate stance in the interim.
Bottom Line
For now, Powell remains Fed chair, and Trump says he’s not planning to change that. But few are taking the president’s word as final.
“We have to wonder if the earlier report was a trial balloon designed to see how markets might react if Powell were indeed fired,” said Steve Sosnick, chief strategist at Interactive Brokers. “Quite frankly, the relatively muted reactions from stocks and the 10-year bond might have increased the president’s willingness to take action.”
Markets may be used to Trump’s brinkmanship, but the stakes are far higher when the target is the most powerful central banker in the world. If Trump crosses the red line, Wall Street may discover just how sacred Fed independence really is.
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