Original Author: Fairy, ChainCatcher
Original Editor: TB, ChainCatcher
Can a "Renovation" Oust the Federal Reserve Chairman?
Trump had been "bombarding" Powell since the election, and now he is using the renovation controversy to "pressure" him. This seemingly absurd political drama is pushing global market sentiment to a critical point.
What pressure is Powell facing now? What storm would be triggered if he is forced to resign?
Trump and Powell: Seven Years of Love and Hate
The core conflict between Trump and Powell boils down to one thing: one wants to cut rates, and the other stubbornly refuses. They have been at odds over this core disagreement since 2018.
Interestingly, Powell's appointment actually came from Trump's nomination. In February 2018, Powell officially became the Federal Reserve Chairman, nominated by Trump. At the time, Trump expected Powell to implement a loose monetary policy to support economic growth.
In October 2018, Trump first publicly criticized Powell, claiming that the Fed's rapid rate hikes were the "biggest threat" and accused Powell of being "crazy". Their conflict became public, and Trump continued to pressure Powell, with verbal battles ongoing.
In 2022, Powell was nominated by Biden for reappointment, with his term extended to May 2026. After entering the 2024 election year, the situation further escalated. Both during the campaign and after winning, Trump continuously criticized Powell for "moving too slowly" and "not cutting rates enough". In recent months, Trump has repeatedly called for Powell's resignation.
However, it's not easy for Trump to replace Powell. According to U.S. law, the president cannot dismiss the Federal Reserve Chairman due to policy differences unless evidence of "illegal actions or serious misconduct" can be provided.
In July this year, a real breakthrough emerged. The Trump team suddenly introduced a "new script": Trump requested a congressional investigation of Powell, alleging "political bias" and "false statements to Congress", accusing the Federal Reserve headquarters renovation project of having major irregularities.
During this period, rumors spread that Powell was "considering resigning", causing the matter to quickly escalate. Seven years of power struggle reached its climax.
Policy Dilemma: Powell's "Monetary Purgatory"
Former Federal Reserve economist Robert Hatzell directly stated: "The Federal Reserve has been backed into a corner".
Currently, Powell is in a monetary policy "purgatory": on one side are potential price pressures from Trump's tariff policies, and on the other, labor market cooling signs are emerging. These dual threats pose challenges for Powell and the Federal Reserve's policy-making.
If the Federal Reserve cuts rates too early, it might lead to uncontrolled consumer inflation expectations; if it chooses to raise rates to stabilize inflation, it could cause bond market turbulence, interest rate spikes, or trigger a "financial panic".
Beyond the economic predicament, he also faces intense political battles. However, for Trump's pressure, Powell chose to fight back. He requested the inspector general to continue reviewing the headquarters renovation project and, unusually, spoke through the Federal Reserve's official website, detailing the reasons for cost increases and refuting "luxurious renovation" allegations.
Attacked on both economic and political fronts, Powell is experiencing a challenging moment in his career.
What Would Happen if Powell Resigns?
If Powell cannot withstand the pressure and steps down, the global financial market's "pricing anchor" might become loose.
Deutsche Bank's Global Head of FX Strategy Saravelos analyzed that if Trump forcibly removes Powell, the trade-weighted dollar index could plummet 3-4% within 24 hours, with fixed-income markets experiencing 30-40 basis point sell-offs. The dollar and bonds would carry "persistent" risk premiums, and investors might worry about the politicization of monetary swap agreements between the Federal Reserve and other central banks.
Saravelos further pointed out: "More worryingly, the current fragile external financing situation of the U.S. economy could lead to more dramatic and destructive price fluctuations than we predict."
Additionally, the strategy team from ING, including Padhraic Garvey, released a report stating that Powell's early departure is "unlikely", but if it occurs, it would cause the U.S. Treasury yield curve to steepen, as investors would expect interest rate declines, accelerated inflation, and reduced Federal Reserve independence. They also noted that this would form a "fatal combination" for dollar depreciation.
Crypto KOL Phyrex's analysis offers a risk asset perspective. He analyzed that even if Trump successfully replaces Powell, he may not be able to completely control the Federal Reserve. If inflation truly rises again, the new chairman would ultimately have to return to a tightening path. If the Federal Reserve begins rate cuts in September when the economy is stable and unemployment is low, risk assets might see a short-term boost, and the crypto market would also benefit. However, with current rates at 4.5%, there is still much room for further adjustment.
A slight shake of Powell's seat would cause market volatility. This is not just a monetary policy game, but a contest of power and independence.
