The President of the U.S. is preparing to do something unprecedented in history: fire the Chairman of the Federal Reserve! What would happen to the markets?
THE START OF THE CONFLICT
Donald Trump is not exactly known for his diplomacy. This is made crystal clear in his recent remarks, where he called Jerome Powell a “numbskull.”
The trigger? Interest rates.
According to Trump, the Federal Reserve is suffocating the housing market with high interest rates, making it nearly impossible for young people to buy homes. He accuses Powell of refusing to lower rates, even though — in Trump’s view — the economy is “booming” and inflation is low.
And he doesn’t stop there. He often calls Powell “Too Late,” implying that all his moves are delayed and harmful to the country.
But behind these statements lies a long-standing tension.
Powell was appointed in 2018… by Trump himself. But their relationship quickly soured. Trump wanted aggressive interest rate cuts to stimulate growth and boost the markets. The Fed, however, remained cautious, mainly due to inflation concerns.
During his first term, Trump repeatedly attacked Powell publicly, demanding lower interest rates. Today, with inflation having dropped significantly compared to 2022, Trump is once again accusing Powell of obstructing economic recovery.
In recent years, the feud has escalated, culminating in today’s developments. Trump not only continues his verbal attacks on Powell, but according to reports, is seriously considering firing him.
CAN HE DO THAT?
Here’s the critical question: Can the President of the U.S. fire the head of the Federal Reserve?
The answer is — probably not.
The Supreme Court has indirectly addressed this issue, stating that the Fed is a unique, semi-independent institution with constitutional protections. This means it is not easy — and perhaps not even legal — for a president to fire the Fed Chair before the end of their term.
Powell’s term ends in May of next year. Until then, he legally remains in office. But Trump has already started experimenting with ways to remove him sooner.
So, what did he do?
He began accusing Powell of overseeing overpriced renovations at the Fed’s headquarters. A project that started with a $1.9 billion budget has now reached $2.5 billion.
Powell himself has called for an official investigation into the matter. But Trump is already using it as a potential “excuse” for dismissal — citing “mismanagement of public funds” and possible misinformation to Congress.
WHAT DOES THIS MEAN FOR THE MARKETS?
But what would actually happen if Powell were fired?
The most immediate and significant impact would be the undermining of the Fed’s independence.
This alone could trigger massive uncertainty in the markets. If the president can intervene so easily in monetary policy, then no one knows what the future might bring.
You see, the Fed sets interest rates, influences inflation, the job market, exchange rates, and the entire financial system. It’s an institution that is supposed to operate independently of executive power.
If that independence is compromised, every decision could become the result of political pressure — not economic analysis. And in the long run, that is dangerous.
In addition, Powell’s possible removal could lead to extreme interest rate moves — either downward or upward — depending on who replaces him. And naturally, it could create even more volatility in an already fragile global economy.