The Federal Reserve is the most powerful central bank in the world. It manages the dollar, anchors global interest rates, and plays a central role in financial stability.
Its independence from political pressure has been treated as non-negotiable since its creation.
But now that independence is being tested. President Donald Trump is said to be looking at options to fire Fed Chair Jerome Powell.
If Trump follows through, the fallout won’t be limited to the US. It could trigger a chain reaction across global markets, currencies, credit systems, and trade flows.
Is firing the Fed chair even possible?
Legally, Powell can only be removed “for cause,” not for policy disagreements. But that barrier is being challenged.
Trump’s legal team is testing a Supreme Court case involving other independent agencies.
If the Court weakens or overturns the 1935 Humphrey’s Executor precedent, Trump could gain the authority to remove Powell without cause.
Read more: Trump’s war with the Federal Reserve: inside the legal fight to fire Jerome Powell
Trump has called Powell “too late and wrong” for not cutting interest rates faster, and says he has the power to remove him “real fast.”
White House advisers are studying whether a firing is feasible under new legal interpretations.
If the Court gives the green light, Powell’s removal could become a reality. And that would come at a big cost.
What happens to the Fed if Powell goes?
Powell is not a one-man central bank. He chairs a 12-member committee that sets monetary policy.
But removing him would likely trigger a wave of resignations.
That gives Trump the chance to install loyalists, turning the Fed into a political instrument.
The immediate cost would be the collapse of central bank independence.
Investors would no longer trust the Fed to fight inflation or manage the money supply based on economic data.
The central bank would become part of the executive branch. The result will be a loss of credibility that could take decades to repair.
A prime example is Türkiye, where President Erdoğan removed central bank leaders who resisted rate cuts.
The result was inflation over 70%, a currency in freefall, and capital exit.
Of course, the US has more built-in protections, but the direction of travel would be the same.
What would markets do?
The bond market would be the first to react. Investors would assume any replacement for Powell would follow Trump’s push for lower rates, even with inflation not having reached the 2% target yet.
That implies more government borrowing financed by quantitative easing.
Treasury yields would spike as investors dump bonds. Bond prices would fall, creating massive paper losses for banks, pension funds, and insurers.
Liquidity could dry up quickly. Treasuries are used as collateral in financial markets.
If their value drops, institutions would have to deleverage. That could create a credit crunch that could spread globally.
The stock market would likely suffer an initial shock. For reference, the US stock market makes up around 60% of the global stock market.
A sharp selloff could hit the S&P 500, triggering circuit breakers as seen in past crisis moments.
There might be a brief rally if a new Fed chair cuts rates, but that wouldn’t last. Rising yields, inflation, and fear of a policy-driven Fed would push equities into more volatile territory.
What happens to the dollar?
In the short term, the dollar might spike. Forced liquidations and margin calls can boost dollar demand temporarily. But longer term, the picture darkens.
The dollar’s strength depends on trust. If investors believe US monetary policy is no longer guided by long-term stability, that trust fades.
Inflation expectations would become unanchored. If markets believe the Fed won’t raise rates to contain rising prices, inflation becomes self-fulfilling.
The result would be a weaker dollar, rising import prices, and falling real wages.
The dollar is the world’s reserve currency. If it loses that status, it will affect every single economy.
Countries and corporations would start shifting away from dollars in favor of euros, yuan, or commodity-backed assets. De-dollarization would certainly accelerate.
How would this affect the real economy?
The housing market could experience a confusing split. If the Fed cuts rates under political pressure, mortgage rates might drop, giving wealthier buyers a temporary window.
But rising inflation would offset that benefit. For most people, higher prices, tighter lending standards, and market instability would cancel out any gains. Homeownership would become harder, not easier.
Credit markets would tighten. Treasury yields are used to price everything from car loans to corporate debt.
If those yields are no longer seen as dependable, risk premiums rise.
Companies would face higher borrowing costs. Small businesses that are already sensitive to credit conditions would be hit first.
Foreign direct investment would slow or stop. Multinationals can’t make long-term plans in a country where monetary policy is unpredictable and politicized.
Finally, global trade flows would alter completely while capital is moving to safer jurisdictions.
Could this break the system?
The Fed’s institutional credibility is one of the last guardrails in the US economic system.
Firing Powell would send a message that even this guardrail is now subject to politics.
Investors and policymakers would begin pricing in “political risk” to US assets, something typically reserved for emerging markets.
Risk models would be updated. Institutions might begin to consider capital controls or political interference as part of their US exposure.
G7 nations might consider coordinating a response to stabilize global markets if the dollar falters. Some are already discussing alternatives to the current reserve currency system.
Discussions about having a mixed basket of currencies or special drawing rights (SDRs) are already escalating.
What’s the long-term consequence?
Removing Powell wouldn’t just be about replacing one central banker. It would completely alter how the Federal Reserve operates and what role it plays in the economy.
If it becomes a tool of the White House, markets will adapt. But perhaps not in a way that benefits the US.
Once trust is lost, it cannot be easily regained.
The US would go from being the most stable economic power to being treated more like a high-risk borrower.
Inflation would be harder to control. Capital would be harder to attract. Economic growth would become more volatile.
If Powell is fired, the immediate market reaction may be sharp, but the real danger is long-term.
Investors, institutions, and foreign governments would see it not just as a change in personnel but as a change in regime.
The Federal Reserve would no longer be seen as an anchor for global finance. It would be seen as a tool of politics.
And that would mark the end of an era.
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