tl;dr
A Wolfe Research note warns that if President Trump fires Federal Reserve Chair Jerome Powell, it could trigger market turmoil, including equity selloffs and rising long-term yields. Trump’s intentions are unclear, having both suggested and denied plans to remove Powell, who has resisted interest ra...
A recent research note from Wolfe Research explores potential outcomes if President Donald Trump decides to fire Federal Reserve Chairman Jerome Powell, warning that “this would be a mess” for markets. Analysts Tobin Marcus and Chutong Zhu predict a significant negative impact, including an equity selloff and a spike in long-term yields. Speculation includes the Supreme Court potentially deciding on Trump’s authority to dismiss Powell for cause.
The situation remains uncertain, as Trump initially told Republican members of Congress about a likely firing but then publicly denied plans to remove Powell, citing the need for proof of fraud. Despite Trump's history of quick firings after expressing support, his months-long frustration with Powell’s refusal to cut interest rates adds complexity to the issue.
Evercore founder Roger Altman condemned the idea of firing Powell as one of the worst possible decisions, highlighting the importance of central bank independence for economic stability, contrasting the US with countries like Turkey and Argentina, which face double-digit inflation due to politicized central banks. Altman doubts Powell would voluntarily leave and anticipates court battles if Trump attempts to fire him.
Wolfe Research agrees, noting past unsuccessful lawsuits by Trump-fired commissioners, but emphasizing Powell’s unique role as Fed chair without a direct superior capable of firing him. The analysts outline three scenarios: Powell remains in position amid legal challenges; Powell leaves voluntarily and sues for reinstatement; or a dramatic executive removal attempt leads to federal intervention—a market-worrying prospect.
The note explains that any litigation would likely reach the Supreme Court, which has previously recognized the Fed’s distinct structure and hinted at protecting its chair from at-will dismissal. While Powell stands a reasonable chance to win, it’s not guaranteed, as the court's interpretation of “for-cause” protections versus presidential authority remains unresolved. An injunction preventing the firing may allow Powell to finish his term, underscoring the high stakes of this unfolding drama for both governance and markets.