Investors warn of bond selloffs, inflation fears, and legal chaos if Trump removes Powell from the Fed
US President Donald Trump asked House Republicans if he should fire Federal Reserve Chair Jerome Powell — and most reportedly said yes, raising questions about central bank independence, market stability, and the legal limits of executive authority.
According to CBC News, Trump told the lawmakers he likely would proceed with Powell’s removal, despite legal and market risks.
Trump confirmed on Wednesday that he raised the idea, saying, “I talked to them about the concept of firing him. I said, ‘What do you think?’ Almost all of them said I should.” He added that he was “more conservative than they are.”
Later, he told reporters there were no current plans to proceed, though he didn’t rule it out entirely and said it would be “highly unlikely, unless he has to leave for fraud.”
The Federal Reserve’s multibillion-dollar renovation project has emerged as the basis for that possible “for cause” justification.
Trump said Powell “spent far more money than he was supposed to rebuilding” and that “he’s got some problems.”
Office of Budget and Management Director Russ Vought sent Powell a letter accusing him of running an “ostentatious” and potentially unlawful renovation, as reported by CBC News.
Powell has responded that such claims are “misleading and inaccurate” and has asked the Fed’s inspector general to review the spending.
According to The New York Times, Trump even showed lawmakers a drafted termination letter during the Oval Office meeting on Tuesday evening, which was initially intended to discuss stalled crypto regulation bills.
The same night, Florida Republican Rep. Anna Paulina Luna posted on X: “Hearing Jerome Powell is getting fired! From a very serious source.”
Hearing Jerome Powell is getting fired! From a very serious source. 👀
— Anna Paulina Luna (@realannapaulina) July 16, 2025
She later wrote, “I’m 99% sure firing is imminent.”
Markets reacted swiftly.
As reported by CNN, the US dollar index fell as much as 0.8 percent before paring losses after Trump walked back the statement.
Yields on 30-year US Treasuries topped 5 percent for the first time since May, while bond traders priced in higher inflation risk and uncertainty.
Analysts have warned of serious financial fallout if Trump follows through.
Deutsche Bank strategist George Saravelos said in a Friday note that firing Powell would represent “a direct affront to Fed independence” and predicted a 3 to 4 percent drop in the dollar within 24 hours.
JPMorgan CEO Jamie Dimon said, “The independence of the Fed is absolutely critical… Playing around with the Fed can often have adverse consequences, absolutely opposite of what you might be hoping for.”
Chip Hughey at Truist Advisory Services added that longer-term bond yields would likely rise as institutional trust erodes.
Investors have started repositioning.
Raymond James strategist Matt Orton said he favours shifting from Treasuries to gold and quality equities due to the rising uncertainty.
According to Allspring’s George Bory, the firm has been preparing for a steeper yield curve, citing the political climate and growing deficits.
Despite the legal uncertainty, Trump has continued his criticism of Powell’s rate policy. “I think he’s terrible,” he said Tuesday, adding, “You talk to the guy, it’s like talking to a — nothing. It’s like talking to a chair.”
He has called Powell “Mr. Too Late” and accused him of delaying necessary interest rate cuts. Trump has proposed a 3 percentage point reduction from the current 4.25–4.5 percent range.
Powell was originally nominated by Trump in 2017 and confirmed in 2019. Biden renominated him for a second term in 2022. Powell’s current term runs until May 15, 2026, with his seat on the Fed Board extending to January 2028.
The Supreme Court recently signalled that the president cannot remove the Fed chair at will.
Legal precedent only allows “for cause” dismissal, which typically refers to misconduct, not policy disagreements.
Krishna Guha at Evercore ISI noted that a firing attempt would likely fail under current constitutional interpretations.
While some members of the House Financial Services Committee had planned to meet with Powell this week, the meeting was cancelled due to House vote timing, reported by CBS News.
Committee Chair French Hill told CNBC, “I don’t see” Trump going through with Powell’s removal.
