President Donald Trump took on Federal Reserve Chair Jerome Powell again on Monday. In an online post, Trump called Powell a “major loser” and said the U.S. economy could slow unless there are lower interest rates “NOW.” – Agence France-Presse/Getty Images
A rare mix of simultaneous selloffs in stocks, the dollar and long-dated Treasurys took hold on Monday after President Donald Trump lashed out again at Federal Reserve Chairman Jerome Powell in a way that investors fear threatens to undermine the central bank’s independence.
All three major U.S. stock indexes finished sharply lower, with the Dow Jones Industrial Average DJIA, S&P 500 SPX, and Nasdaq Composite COMP each falling by more than 2%. The yield on the 30-year Treasury bond BX:TMUBMUSD30Y spiked to a three-month high of almost 4.91% in an aggressive selloff of long-dated U.S. government debt. And the ICE U.S. Dollar Index DXY, a measure of the greenback against a basket of six other currencies, dropped 1% to a three-year low.
The combination of moves added up to the latest big selloff of U.S. assets as traders returned from a three-day weekend that included the Good Friday holiday. Now, strategists are mapping out what a dramatic, early departure for Powell — before his term as Fed chair ends in May 2026 — might look like in the financial markets. The answer is not very good.
“Were Powell to be fired, the initial reaction would be a huge injection of volatility into financial markets, and the most dramatic rush to the exit from U.S. assets that it is possible to imagine,” said Michael Brown, a senior research strategist at Pepperstone, an Australian-based provider of trading services.
“Lower, much lower, equities; Treasuries sold across the board; and, the dollar falling off a cliff,” Brown wrote in a note on Monday. Any sign of the longstanding, independent nature of the Fed coming under threat “would see investors across the globe selling every single U.S.-based asset that they have, and also poses the genuinely scary prospect of upending the entire way in which the global financial system operates. If this were to happen, then the reserve status of the dollar, and haven value of Treasuries, would be wiped out, probably forever in both cases.”
Brown isn’t alone in his thinking about the long-run consequences currently facing U.S. assets.
FHN Financial strategist Will Compernolle told MarketWatch that even if a court steps in to block any attempt to fire Powell, the damage to U.S. credibility might already be done. That’s because court intervention may not be enough to restore foreign investors’ trust that the management of U.S. monetary policy will remain free of political influence, he added.
“If you get to the courts, you’ve probably already lost the credibility in the eyes of the financial markets,” Compernolle said.
Trump’s disdain for the Fed chair was made clear last Thursday, when the president posted on his Truth Social account that Powell’s termination “cannot come fast enough!” He told reporters on the same day that “if I want him out, he’ll be out of there real fast, believe me.”
The president’s tirade came one day after Powell offered his starkest assessment of the likely impact of tariffs. Powell warned officials now face a challenging scenario of rising inflation amid labor-market weakening, and that they can wait for greater clarity before making any adjustments to interest rates.
Trump is said to have already privately discussed a potential firing of Powell with former Fed Governor Kevin Warsh, who may be selected to replace him, according to the Wall Street Journal, which cited people familiar with the matter. Experts believe it will be difficult to fire the head of the central bank, and an amended version of the Federal Reserve Act makes it possible for a president to remove a Fed governor only for “cause.”
Michael Reynolds, vice president of investment strategy at Philadelphia-based Glenmede, which manages roughly $45 billion in assets, said: “It is not our base case that Powell gets fired because we are not even sure the president has the ability to do that.” Nonetheless, “investors, on the margin, are thinking about what these threats mean for the Fed’s independence.”
Via phone, Reynolds added that “we are stopping short of pounding the alarm on the Fed’s independence being a risk, and don’t want to play the hypothetical scenario of what a ‘fire Powell’ trade will look like yet.”
On Friday, when stock and bond markets were closed for the Good Friday holiday, White House economic adviser Kevin Hassett said Trump’s team was continuing to study the option of firing Powell. Then on Monday, Trump took another swipe at Powell in another online post which said “there can be a SLOWING of the economy unless Mr. Too Late, a major loser, lowers interest rates, NOW.”
Krishna Guha, vice chairman of Evercore ISI, and others at the New York-based firm said Monday’s market action sends a clear signal that “risk to Fed independence is negative for all major U.S. asset classes and provides a partial foretaste of what might come if President Trump — who again tweeted his demand for preemptive Fed rate cuts — were to actually try to fire Powell.”
They added: “We still think, more likely than not, Trump will not actually try to fire Powell and will instead blame him for the tariff-led downturn ahead. But the risk is enough to move markets,” with an “extremely rare” combination of lower U.S. bond prices, stocks and dollar being seen on Monday. The moves “indicate higher risk premia is being required to hold U.S. assets” as investors reallocate into foreign assets and gold GC00.
If Trump were to try to fire Powell, according to the Evercore ISI team, “this would manifest in a shift from recession to stagflation trades.”
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