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Russian (RU) Carolina Mandl and Davide Barbuscia
Tue, Apr 22, 2025, 3:03 AM 5 min read
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By Carolina Mandl and Davide Barbuscia
NEW YORK (Reuters) -Investors are fearful of a deep hit to asset prices if U.S. President Donald Trump attempts to fire Federal Reserve Chair Jerome Powell, undermining confidence in the central bank's ability to fight inflation and act independently.
That could hurt the already bruised dollar, under-pressure equities and send bond yields higher, market participants said.
The Fed's credibility as the world's most powerful central bank relies on its historic independence. Trump has criticized the Fed for not cutting interest rates quickly enough and if any subsequent chair were to be less inclined to raise rates when needed or to push for faster rate cuts, it could spur inflation.
"Were Powell to be removed, markets would almost certainly interpret it as an inflationary signal, potentially driving long-term interest rates higher and undermining the U.S. dollar's role as the world’s reserve currency," said Elliot Dornbusch, chief investment officer at CV Advisors.
Following Powell's ousting, there would be "violent reactions in markets," according to Jamie Cox, managing partner at Harris Financial Group. "Monetary policy is not a political tool," he added.
Some of the impact has already been seen in asset prices, with the dollar sliding to a three-year low on Monday, stocks selling off with the S&P 500 now roughly 16% below its February peak and benchmark U.S. Treasury yields up.
Longer-dated U.S. Treasury yields rose on Monday. Removing Powell could exacerbate upward pressure on the so-called term premium - a measure of the compensation investors demand for the risk of holding long-dated bonds. Market inflation expectations, as measured by 10-year Treasury Inflation-Protected Securities and 10-year Treasuries, remained relatively stable on Monday.
Trump said in a social media post on Thursday that the Fed chair's termination "cannot come fast enough," although his term ends in May 2026.
White House economic adviser Kevin Hassett on Friday said Trump and his team were continuing to study if they could fire Powell, while Trump on Monday said the economy could slow down unless rates were lowered immediately.
The White House declined further comment on Monday.
LONGSHOT BEING PRICED IN
Investors said that they were starting to take the possibility seriously of an attempt to fire Powell, despite the barriers to do so. It is unclear if Trump would be legally allowed to remove Powell, who is appointed by the president but confirmed by the Senate. Currently, however, an effort by Trump to oust members of other independent agencies is before the Supreme Court.
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