USD - stocks and US government bonds may be sold off when the Fed is no longer able to operate independently, according to experts' warnings.
In recent days, US President Donald Trump has repeatedly expressed dissatisfaction with the Chairman of the US Federal Reserve (Fed), Jerome Powell, for not cutting interest rates, especially after the European Central Bank (ECB) cut interest rates on April 17. Last year, the Fed cut interest rates three times, then stopped at the beginning of this year, to further monitor the inflation situation.
According to the Federal Reserve Act of 1913, the US President can only fire Fed governors if there is "just cause", not because of policy or political disagreements. "Just cause" is not specifically defined by this law, but is understood to include "incompetence, neglect of duty, or misconduct while in office". The US Congress gave the Fed this status to ensure that the agency makes decisions related to the economy and the banking system without political interference.
The disagreement between Trump and Powell has existed for many years, although it was Mr. Trump who nominated Powell to the position of Fed Chairman. Trump gradually became dissatisfied with Powell because the Fed kept raising interest rates, and did not lower them at times when the US President thought it was appropriate to support economic growth. Mr. Trump also threatened to fire Powell at that time, but did not do so, partly because the Fed still lowered interest rates, although not as quickly and strongly as the President wanted, and partly because of potential legal obstacles.
In November 2024, during a Fed press conference, when asked if he would resign if President-elect Donald Trump asked him to, Fed Chairman Jerome Powell affirmed: "No". Powell told reporters that the position of US president does not have the power to fire or demote him. "This is not stipulated in the law," he explained.
However, the current situation is very different. This time, he holds more power than ever, with a team of loyalists appointed to key positions in the administration. Trump has long shown his willingness to break with norms and precedents, including giving billionaire Elon Musk the power to fire federal employees through the Department of Government Efficiency (DOGE). Since taking office in January 2025, Trump has also fired several officials in charge of other independent agencies. These moves have led to lawsuits against Trump.
If Trump's team finds a way to remove Powell from the Fed chairmanship, it will have many economic, political and legal consequences, experts warn. The Fed's independence from the White House has long been considered essential to global economic and financial stability.
"I disagree with Powell on many issues, both on regulations and interest rates. But remember this: If Chairman Powell could be fired by the US president, the market would collapse," Elizabeth Warren, the top senator on the US Senate Banking Committee, said on April 17. She explained that the foundation for the US stock market and the global economy "is the belief that important institutions operate independently of politics."
In the trading session on April 21, all three major US stock indexes fell sharply, as investors worried about the possibility that the Fed could continue to operate independently. The DJIA fell 971 points, equivalent to 2.48%. The S&P 500 lost 2.36% and the Nasdaq Composite fell 2.55%.
The US dollar has also lost value over the past month in the context of investors' confidence in the US economy wavering, after a series of offensive statements by Mr. Trump aimed at Powell. The Dollar Index is currently fluctuating around 98.2 points - a 3-year low. Since the beginning of the year, this index has decreased by 10%. The decrease in the USD also contributed to pushing the world gold price up to nearly 3,480 USD per ounce currently.
Another asset that has been sold off due to tensions between the White House and the Fed is US government bonds. On April 21, the yields on 10-year and 30-year US Treasury bonds increased by 8 and 10 basis points, to 4.4% and 4.9%, respectively.
"We do not see any benefit if President Trump forces Mr. Powell to leave the Fed Chairman position early. Similarly, nominating a successor early will also be more detrimental," said Steve Englander, global head of foreign exchange research at Standard Chartered Bank.
On the social network Truth Social on April 21, Mr. Trump continued to call Powell a "big loser" and warned that the US economy would slow down if interest rates were not reduced "immediately". Analysts said that Mr. Trump wants to lower interest rates to minimize the impact of slowing economic growth. His import tax policies are expected to increase commodity prices and slow global trade.
However, Powell does not want to lower interest rates early, due to concerns about inflation. The Fed is still carefully monitoring economic data to assess the impact of its policies.
Trump's unprecedented yoke.
If Powell leaves, the outlook for US interest rates will change immediately. Investors are now predicting the Fed will cut interest rates by another 100 basis points (1%) this year, to 3.25-3.5%. If the new Fed Chairman shares Trump's views, US monetary policy will be more accommodative. The risk of inflation will be greater, especially in the context of the US imposing import tariffs on all trading partners.
Reuters said that even if Trump finds a way to force the Fed Chairman to leave office, Powell can still sue in federal court. This legal confrontation will likely lead to arbitration by the Supreme Court. Powell will have to use personal resources to do this. However, as a former lawyer and head of many private asset management companies, he is considered capable and financially capable of pursuing the lawsuit.
In addition, a president firing a Fed chairman over policy differences could set a dangerous precedent. Future presidents could do the same if they are unhappy with the direction the Fed is taking. This would threaten the agency’s ability to operate independently and professionally.
Trump is not the first US president to influence the Fed on policy issues. In the early 1970s, then-Fed chairman Arthur Burns was pressured by President Richard Nixon, who nominated him for the position. This forced Burns to maintain monetary easing before the 1972 election, despite rising inflationary pressures.
By 1974, inflation had exceeded 12% and remained high for the rest of the decade. Inflation was only brought under control under Fed Chairman Paul Volcker, who adopted a series of interest rate hikes that pushed the country into two recessions in the early 1980s.
"The risks are twofold. First, Powell keeps interest rates high for longer than the market expects. And second, Trump's intervention raises concerns about the independence of the central bank," Nigel Green, CEO of investment consultancy deVere Group, warned on CBS.
(according to Reuters, CBS, CNBC)