Fed on Edge: Trump Threatens Powell’s Position as Markets Brace for Fallout

The Political Earthquake Rattling the Federal Reserve

For months, President Trump has openly criticized Jerome Powell’s leadership at the Federal Reserve, but recent developments suggest these tensions are escalating dramatically. According to Wall Street Journal reports, Treasury Secretary Steven Mnuchin (史蒂文·姆努钦) delivered urgent private counsel to Trump, warning that dismissing Powell could ignite financial turmoil with catastrophic global consequences. This unprecedented threat to central bank independence sends shockwaves through markets already navigating trade wars and economic uncertainty.

Why This Matters Now

Three critical factors intensify this standoff:

• The Fed anticipates two interest-rate cuts before year-end amid slowing growth signs
• Trump escalates pressure via Twitter demands for unprecedented 3% rate reductions
• Newly surfaced controversies over Fed building renovations provide political leverage

Historical precedent offers no comfort: No US president has ever fired a sitting Fed chair since the central bank’s 1913 founding.

Treasury Secretary’s Dire Warning

Mnuchin’s confidential counsel to Trump explicitly outlined trip-wire consequences should Powell be removed:

Market Instability Triggers

Removing Powell prematurely could trigger dollar sell-offs mirroring historical crises. A Deutsche Bank analysis projects immediate 3-4% dollar depreciation if dismissal occurs—equivalent to erasing $65 billion from reserves overnight. Mnuchin emphasized markets would interpret such action as political interference requiring panicked repositioning.

Constitutional Quandaries

The Federal Reserve Act restricts presidential removal powers solely to “cause” like malfeasance—not policy disagreements. Legal scholars universally contend Trump lacks statutory grounds, setting up court battles that fracture policy continuity. Senator John Kennedy (约翰·肯尼迪) bluntly warned CNBC: “This ends at the Supreme Court while markets burn.”

Global Confidence Collapse

ING currency strategist Francesco Pesole observes: “Fed independence forms the bedrock of dollar dominance. Undermining that scares reserve managers toward diversification.” Chain reactions could include:

• Accelerated gold purchases as % of sovereign reserves
• Flight toward euro-denominated assets
• Emerging market repayment crises from dollar debt exposure

The Renovation Controversy: New Ammunition

Trump recently resurrected criticisms of the Fed’s $2.5 billion HQ renovation, calling costs “shameful” despite Government Accountability Office findings showing normal federal project variance. Former Fed legal counsel Mark Geiger describes this as “politically convenient suspense building”—using tangential issues to pressure policy alignment.

Historical comparisons prove chilling: When Argentina’s President Kirchner fired central bank chief Martin Redrado for resisting reserves usage in 2010, MSCI Argentina Index plunged 12% in two days. Similar vulnerabilities haunt US assets today.

Sounding the Alarms: Experts’ Market Forecasts

Financial titans amplify Mnuchin’s warnings:

Jamie Dimon’s Institutional Memory

The JPMorgan CEO invoked lessons from 2018’s volatile corrections: “Markets hate unpredictability. Injecting politics into rates creates binary outcomes with lifelong scars.” Historical patterns reveal Fed politicization typically:

• Elevates Treasury yield volatility by 300%+
• Compresses foreign Treasury holdings 15-20%
• Flattens institutional lending pipelines

The Two-Day Collapse Scenario

Morgan Stanley’s 2024 projection model maps potential pathways:

Preventative hedges already appear: CME Group data shows protective put options spiking 300% on banks with Feds Discount Window access.

The Global Spillover Effects

Erosion of Fed credibility unleashes cross-border chain reactions:

Currency War Escalations

Historically sober Switzerland recently threatened franc interventions—credentials rarely tapped since 2011. Analyst George Saravelos explains: “Forcing Fed dovishness removes exporter restraint. Everyone competitively devalues.” Monthly forex reserve shifts would likely manifest through:

• Yuans’ reserve share rising faster than projected
• Crypto corridor demand spikes
• BIS coordination failures

The Banking Confidence Crisis

BCG studies confirm perception of compromised regulators triggers wholesale funding withdrawals. Smaller US banks would exhaust FHLB borrowing capacity within days—precisely why Mnuchin deployed “legacy damage” vocabulary describing potential outcomes.

Asian institutions face particular contagion risk given dollar debt exposure. MIT researchers note: “Emerging market central banks hold 63% of US Treasuries versus 50% a decade ago—creating dangerous feedback loops.”

The Precarious Path Ahead

Trump faces escalating adviser pressure days before critical G7 meetings where currency stability features prominently. Mnuchin’s defenses of Powell remain powerful: Inflation remains benign, markets approach historic highs, and projected cuts could deliver stimulus without institutional sacrifice.

Smart Investor Positioning

Prudent preparation includes:

• Rebalancing portfolios toward low-beta defensive equities
• Laddering Treasury maturities
• Silver/gold allocation increase
• Structuring bond hedge via interest rate swap curves

The ultimate lesson? As Bipartisan Policy Center chair Doug Holtz-Eakin summarizes: “Monetary policy independence is America’s golden goose. You don’t strangle golden geese.”

The Fiscal Sanctity Imperative

Preserving Fed autonomy transcends current disputes—it protects dollar hegemony for generations. Investors should contact congressional representatives urging formal resolutions affirming independence. Simultaneously, continued diversified allocation review defends against scenarios yet unfolding.

Finally, tracking real-time wisdom matters: Follow Federal Reserve communications directly at FederalReserve.gov for unfiltered guidance as circumstances evolve.