Strategists Warn: Removing Fed Chair Would Rattle Markets and the Economy
As President Donald Trump prepares for his second inauguration, concerns are rising on Wall Street about the stability of U.S. markets—particularly around the possibility that Trump may attempt to remove Federal Reserve Chair Jerome Powell.
This speculation comes after a series of surprising policy moves, including aggressive tariffs, that have shaken investor confidence. Some analysts now worry that Trump could follow through on his long-standing threats to fire Powell—a move they say could have dire consequences for financial markets and the broader economy.
Kathy Jones, chief fixed-income strategist at the Schwab Center for Financial Research, cautioned that investors should not dismiss the threat. “He would very much like to fire Powell and to lower interest rates—that’s very clear,” Jones said. “My guess is he’s been advised against it, but I wouldn’t be surprised if he ignores that advice.”
On Thursday, Trump renewed his attacks on Powell via social media, criticizing him for not cutting rates and calling him “Too Late Jerome.” He pointed to the European Central Bank’s recent rate cut as an example the Fed should follow. Meanwhile, Powell reiterated the Fed’s data-dependent stance, stating the central bank would monitor how tariffs affect inflation and growth before making any moves.
The Fed last cut interest rates in September 2024 but has kept them steady through early 2025. When asked if the central bank would act in response to a sharp stock market drop, Powell responded with a firm “No.” Stocks fell sharply following that remark.
While Trump’s comments raised eyebrows, reports later emerged that he had no immediate plans to remove Powell. According to Politico, Treasury Secretary Scott Bessent advised the president that firing the Fed chair could severely damage U.S. financial markets.
Legally, it remains unclear whether Trump has the authority to remove Powell. The Fed chair has publicly stated that the law protects the central bank from politically motivated firings. However, a forthcoming Supreme Court decision in Trump v. Wilcox could change that. A ruling expanding presidential authority could undermine the Fed’s independence by enabling firings at agencies previously shielded from political influence.
Despite the legal uncertainty, markets seemed to shrug off the threat on Thursday. The S&P 500 closed slightly higher after a volatile session ahead of the holiday weekend.
“Are they taking him seriously or just ignoring the potential problem? Seems like the latter,” said Steve Sosnick, chief strategist at Interactive Brokers.
Senator Elizabeth Warren warned on CNBC that firing Powell could spark a market crash. While Sosnick didn’t go that far, he emphasized that Fed independence is vital to investor confidence. “International investors value institutions like an independent central bank,” he said. “We’re already seeing foreign capital pull back, and this wouldn’t help.”
At a Thursday press conference, Trump suggested Powell would step down if asked—though Powell has said otherwise. When directly asked whether he intended to fire the Fed chair, Trump gave no clear answer. The Wall Street Journal reported that while Trump has discussed the idea for months, his advisors have consistently pushed back.
Not everyone on Wall Street opposes Powell’s removal. Jay Hatfield, portfolio manager at Infrastructure Capital, argued that Powell mishandled inflation in 2021 by delaying rate hikes. “He absolutely can fire him, and Powell can sue,” Hatfield said.
Still, Jones warned that removing Powell could trigger a broader financial backlash, including a selloff in U.S. Treasurys and the dollar—events typically associated with emerging markets or countries facing political instability.
“It’s just not done in a major developed country,” she said. “The more Trump pushes, the worse it gets.” Even if investors approve of Powell’s replacement, Jones added, the damage to credibility would already be done. “Bond yields would rise, the dollar would drop—you lose trust.”
Markets remained under pressure Thursday. The Nasdaq fell 0.1% to 16,286.45. The S&P 500 edged up 0.1% to 5,282.70, while the Dow Jones Industrial Average dropped 1.3% to 39,142.23.
