Removing the chair of the central bank would have severe consequences for markets and the economy, strategists warn

Federal Reserve Chairman Jerome Powell is increasingly finding his position under threat, if President Donald Trump’s rhetoric is to be believed.

Ahead of President Donald Trump’s second inauguration in January, one phrase making the rounds on Wall Street was that investors should take the president-elect “seriously, but not literally.”

That already has proven to be misguided. As the tumult in financial markets in recent weeks would suggest, Trump’s aggressive approach to tariffs took many investors by surprise.

Now, some fear Trump could attempt to fire Federal Reserve Chairman Jerome Powell. Such a move would hurt financial markets and, by extension, the U.S. economy, several investment strategists told MarketWatch.

Investors shouldn’t dismiss the possibility that Trump might attempt to make good on his threats to remove Powell from the Fed, said Kathy Jones, chief fixed-income strategist at the Schwab Center for Financial Research.

“He would very much like to fire Powell and to lower interest rates, that’s very clear,” Jones told MarketWatch.

“My guess is he’s been told not to do that,” Jones said, noting the U.S. likes to maintain the idea of an independent central bank, not one at the beck and call of the president. “I wouldn’t be surprised if he ignores some of the advice he’s gotten and tries to make it happen.”

Trump returned to slamming the Fed chair publicly Thursday for refusing to lower interest rates. Trump called him “Too Late” Jerome Powell in a social-media post, and demanded the central bank follow the example set by the European Central Bank, which announced its latest rate cut on Thursday.

On Wednesday, Powell reiterated that the Fed would wait and see how Trump’s tariffs impact the economy and inflation, and that he’s comfortable taking time for more clarity before moving ahead with further interest-rate cuts.

The Fed in September cut rates for the first time since the start of the COVID-19 pandemic, but has held them steady since the start of 2025. When asked if the Fed would intervene if the stock market plummeted, Powell responded: “No.” Stocks ended the session with sharp losses.

Trump’s social-media post was followed by a flurry of press reports citing White House officials who said Trump wasn’t actually planning to fire Powell. Politico reported that Treasury Secretary Scott Bessent has warned Trump that firing Powell could risk harming U.S. markets.

Whether Trump has the authority to fire Powell is less clear. Powell reiterated on Wednesday that existing law protects members of the Fed from being removed by the White House for political reasons.

However, an upcoming Supreme Court decision could make it easier for Trump to do so, as MarketWatch reported Thursday. Analysts at Evercore ISI led by Krishna Guha warned that a ruling in the case Trump v. Wilcox could potentially undermine the independence of the Fed, and other government agencies, by expanding presidential powers and allowing firings at institutions previously considered insulated from political pressure.

On Thursday, investors appeared willing to largely give Trump the benefit of the doubt, as the S&P 500 index inished slightly higher after a rocky session ahead of the long holiday weekend.

“Are they taking him seriously or just ignoring the potential problem?  Seems like the latter,” said Steve Sosnick, chief strategist at Interactive Brokers, on Thursday.

Earlier, Democratic Sen. Elizabeth Warren, a frequent critic of Powell, said during an interview on CNBC that firing the Fed chair could cause U.S. markets to crash.

Although not going as far as Warren, Sosnick said any decision that compromises the independence of the Fed could deter foreign investors from investing in U.S. markets.

“I believe that we underestimate how important many of our institutions are to international investors. Those include a nonpartisan judiciary and a central bank that is immune to political meddling,” Sosnick said.

“There’s already a concern that foreigners have been retreating from our stock and bond markets, and this certainly won’t do anything to assuage those concerns,” he added.

During a press conference at the White House on Thursday, Trump insisted that Powell would leave his position if asked. Powell, for his part, has said that he would not. When Trump was asked if he was trying to remove the Fed chair, he didn’t give a clear answer.

The Wall Street Journal reported on Thursday that Trump has been talking about firing Powell for some time, but his advisors have pushed back.

Not everyone on Wall Street rejects the idea of removing Powell from office. Jay Hatfield, portfolio manager at Infrastructure Capital, suggested that Trump might have grounds for firing Powell, based on his unwillingness to raise interest rates as inflation intensified in late 2021.

The Fed initially characterized the inflationary wave that swept the U.S. and much of the world in 2022 as “transitory,” which some have deemed a policy mistake. Powell’s Fed didn’t start raising interest rates until March 2022 as it embarked on the most aggressive rate-hiking cycle in decades.

“He absolutely can fire him, and Powell can sue,” Hatfield said.

Yet Schwab’s Jones warned that an attempt to fire Powell would likely deepen the selloff in Treasurys and the U.S. dollar, a pattern typically only seen in emerging-market economies or when confidence in a nation’s governance has been shaken. When Treasurys sank in tandem last week, it fueled speculation that foreign investors might be dumping U.S. debt.

“It’s just not done in a major developed country,” Jones said of the talk of Trump seeking to remove Powell. “The more he pushes, the worse it is.” Even if investors approved of any potential Powell replacement, she said the damage already would be done. “Bond yields would go up and the dollar down, because you lose any sense of credibility then,” Jones said.

U.S. stocks have fallen sharply in 2025 and finished mostly lower on Thursday, with the Nasdaq Composite falling 0.1%, to 16,286.45. The S&P 500 rose 0.1% to finish the week at 5,282.70. The Dow Jones Industrial Average shed 1.3% to close at 39,142.23.