What if Trump Fires Powell? Implications for Markets

Tensions between Donald Trump and Federal Reserve Chair Jerome Powell are flaring again. Donald Trump, known for his unconventional approach to politics, is once again calling for an immediate reduction in interest rates, while the Federal Reserve, led by Jerome Powell, seems in no hurry to make this decision. This situation is brewing for a reason: Trump’s tariff policy, aimed at protecting American manufacturers, carries the risk of a new round of inflation, which in turn is forcing the Fed to exercise caution.

So, what will happen if Trump really takes this unprecedented step and fires Jerome Powell? Let’s try to simulate the situation.

Legal & Institutional Barriers

To start with, can Trump fire Powell if he wants to?

Technically, yes. Although the Fed is considered an independent body, formally the president has the right to dismiss the chairman “for cause” (e.g., for “incompetence”). This has never happened in US history, but Trump has already broken with tradition on more than one occasion.

While the technical legality of firing Powell remains unclear, markets would focus less on the mechanism and more on the message: that monetary policy is becoming politicized.

This would represent a regime shift — from an independent Fed to a politically influenced one. History shows us that the erosion of Central Bank independence is a key precursor to currency crises, inflation shocks, and long-term loss of investor trust.

Trust in Institutions: The Foundation of Stability

The dismissal of the Fed chair for political reasons would be a serious blow to the independence of the Central Bank. The Fed is considered an apolitical institution whose task is to maintain price stability and maximum employment, not to pander to political whims. Such interference would undermine:

• Investor confidence in US institutions: If the Central Bank can be dismissed for political reasons, how can one be sure of the stability of other regulators and rules of the game?
• The international authority of the US: The role of the dollar as a global reserve currency and a safe haven depends on confidence in the stability of the American economic and political system. Political interference in the affairs of the Fed could undermine that confidence.

Even if removed, Powell might remain on the Fed’s Board, and a new chair would still need majority support from the Federal Open Market Committee (FOMC).

Monetary Policy: Inflation vs. Interest Rates

The main sticking point between Trump and Powell is interest rates. Trump advocates for their immediate reduction to stimulate economic growth. However, Trump’s protectionist policies and trade wars are themselves inflationary factors. Lowering rates in such a situation could lead to:

• A new round of inflation: If the new Fed chair appointed by Trump rushes to lower rates without considering inflationary risks, this could lead to price increases and a decline in the purchasing power of the dollar.
• Overheating of the economy: Excessive stimulation of the economy in conditions of full employment could lead to bubbles in financial markets and, again, to inflation.

How Might Markets React to Powell’s Shift?

📉 1. US Dollar

Short-term reaction:
Markets would likely interpret Powell’s dismissal — or even serious pressure from the White House — as an assault on Fed independence. That could immediately send the US dollar lower. ING analysts estimate a 3–4% decline in USD in the short term.

Why? Because the credibility of US monetary policy is foundational to the dollar’s reserve status. If investors believe future rate decisions are politically motivated, confidence in USD-denominated assets could erode.

Long-term outlook:
If Powell is replaced by a more dovish figure, the Fed could adopt looser policy—especially if inflation is “re-interpreted” as transitory. This risks entrenching inflation expectations, putting more downward pressure on the dollar.

📈 2. Equity Markets: Volatility

Initial risk-off reaction:
A sudden shakeup at the Fed could cause near-term equity volatility. Investors fear uncertainty, and Powell’s credibility has helped anchor expectations. Indexes like the S&P 500 and Nasdaq could see sharp pullbacks on the announcement.

Medium-term relief rally?
On the other hand, if Powell’s departure is followed by clear signals of dovish monetary policy — especially rate cuts — then equities may recover quickly, particularly growth and tech stocks that are highly sensitive to rates.

However, the risk is two-fold:

• if markets begin to fear that inflation will stay higher for longer,
• or if foreign capital flows decline due to dollar instability,

…then equity valuations could come under sustained pressure.

📈 3. Gold: Major Tailwind

Gold is likely the biggest relative winner in a Powell-dismissal scenario. Here’s why:

• Weaker dollar = gold priced higher in USD.
• Inflation fears = increased demand for hard assets.
• Loss of Fed credibility = rush into safe-haven instruments.

A drop in real yields, especially if nominal rates are capped while inflation persists, would create a “Goldilocks” environment for bullion. It’s realistic to expect gold to test or even exceed $3,500/oz in such a scenario or higher.

Bottom Line

Donald Trump’s dismissal of Jerome Powell is not just a change of personnel. It is a potential turning point that could profoundly affect confidence in American institutions, the stability of the global financial system, and the future of monetary policy. It is playing with fire, and the price of such a move could prove too high. Markets, despite all their volatility, ultimately gravitate toward stability and predictability. And political games with the Central Bank are the best way to undermine both.