In recent months, U.S. President Trump has repeatedly privately discussed with his core advisory team the possibility of replacing the current Federal Reserve (Fed) Chairman Powell, with reports indicating that Trump even met with former Fed Board member Kevin Walsh to explore the possibility of Walsh replacing Powell, with such discussions continuing as recently as February at Mar-a-Lago.
Although Walsh reportedly urged Trump to respect Powell's term (until May 2026) and avoid intervention or dismissal, Trump's dissatisfaction with Powell seems to have reached a boiling point. This Thursday (April 17), Trump publicly blasted Powell on his social media platform Truth Social, criticizing him for not cutting rates quickly enough, calling him "always too late and wrong", and even shockingly stating that "Powell's dismissal cannot come soon enough!" Trump further told reporters directly in the Oval Office:
If I want him (Powell) to go, he will leave very quickly, believe me. I am not satisfied with him (Powell), he is playing politics.
Policy Differences? Powell Maintains Independent Stance
The core of Trump's conflict with Powell stems from principles of interest rate policy. Trump hopes to stimulate the economy and reduce corporate borrowing costs through significant rate cuts, especially when his high tariff policies might drag down the economy, expecting the Fed to play a "supporting" role. Trump believes inflation has significantly dropped and the Fed should quickly adopt a loose policy. However, Powell believes the Fed must be an independent institution, insisting policy decisions must be based on economic data analysis to achieve the two congressional mandates of "full employment" and "price stability", without being swayed by short-term political needs.
Ironically, Powell was initially nominated by Trump himself. Facing Trump's repeated attacks and dismissal threats, Powell has repeatedly reaffirmed his legal position: the Fed Chairman has a legally guaranteed term and cannot be dismissed by the president unless there is a clear "legal cause", such as misconduct. Powell firmly stated: "Our independence is a legal matter." He clearly indicated he would complete his term and would not resign even if requested by the president.
The legal gray areas and Trump's institution-challenging style make this confrontation full of variables. A case currently being reviewed by the U.S. Supreme Court might influence the president's power to dismiss heads of independent institutions, adding more uncertainty. Trump's public challenge to the Fed's independent operation has raised high concerns on Wall Street and in global financial markets.
Would Powell's Dismissal Affect the Market?
The Fed's independence is not just an economic textbook principle, but a cornerstone of maintaining financial market stability and the U.S. dollar's global credibility for over a century. Only an independent central bank can make decisions truly beneficial to long-term economic health, uninfluenced by election cycles or political interests. If the market believes the Fed might succumb to political pressure, it could trigger a chain reaction threatening the U.S. credit system, with potential threats in three directions:
- U.S. Credit Collapse Impacting Bond Market: The market would struggle to trust the Fed's policy guidance, causing interest rate expectations chaos, making it difficult for businesses to plan investments, and causing financial market pricing to fail.
- Sudden Market Volatility: Uncertainty is the market's biggest enemy. The shadow of political interference will cause risk premiums to soar, investor confidence to collapse, potentially triggering severe sell-offs in stock markets (like S&P 500, Nasdaq), impacting portfolio values.
- U.S. Dollar Credibility Damaged: The Fed's independence is a crucial support for the U.S. dollar's status as a global reserve currency. If its credibility is damaged, it could shake the dollar's international position, trigger capital outflows, and potentially cause a U.S. Treasury bond sell-off.
Last week's rise in U.S. Treasury bond yields after Trump's announcement of reciprocal tariffs has already been seen by the market as a systemic credit issue. The market is also closely watching non-Treasury safe-haven assets, with gold consecutively hitting new historical highs, and some experts estimating Bitcoin might also benefit. However, before that, the key is determining whether tariffs will cause a significant economic recession. If the economy declines, even with a safe-haven trend, asset prices cannot be guaranteed to maintain growth.
Regardless, investors should focus more on geopolitical and situational changes to survive this period of global macroeconomic uncertainty.
