To The Moon

It’s April 2025, and with Donald Trump now firmly in office for his second term, the spotlight turns once again to the Federal Reserve—and Chair Jerome Powell.

Their strained history is no secret. Trump publicly criticized Powell multiple times during his first term, labeling him an obstacle to economic growth and blaming him for keeping interest rates “too high.” Now, with Trump back in power and inflation still a political hot potato, the question isn't if Trump will clash with Powell—it’s how far he might go.

Can Trump actually fire Powell?

This is where the legal gray zone begins. The Federal Reserve is structured to be independent from political influence. Powell’s current term runs through May 2026. While Trump can’t directly fire him without cause, he might attempt to demote Powell from Chair back to a regular board governor, effectively sidelining his influence.

While such a move would likely provoke lawsuits and constitutional scrutiny, Trump has never been shy about pushing boundaries. In fact, rumors are already swirling in D.C. about potential replacements more aligned with his pro-growth, low-rate agenda.

Market reaction: Calm before the storm?

If Powell is removed—or even if credible threats start making headlines—markets could see heightened volatility. Investors value consistency and predictability, especially when it comes to monetary policy. Shaking up the leadership of the most influential central bank in the world sends a message: anything goes.

Possible outcomes:

Short-term uncertainty spikes: Markets may initially drop on fears of political interference and Fed instability. Bond yields could whipsaw, the dollar may weaken, and equities could wobble as risk sentiment deteriorates.

Long-term impact depends on replacement: If Trump appoints a more dovish Fed chair—someone eager to cut rates—the market could eventually cheer the move, especially if recession fears are lingering. But if the change is seen as undermining the Fed’s credibility, long-term inflation expectations could rise, unsettling investors.

Credibility risk for the U.S. financial system: The independence of the Fed is not just tradition—it’s a pillar of global economic trust in U.S. institutions. Any action that politicizes it risks damaging that reputation, which could drive away foreign capital and destabilize long-term planning.

What sectors could be affected?

Financials: Banks could get squeezed if rate policy swings unpredictably.

Tech and growth stocks: These might rally if a new dovish Fed signals cuts.

Gold and safe havens: Could spike if investors fear institutional instability.

Bottom line?

This isn’t just about Powell. It’s about trust, predictability, and the rules of the economic game. If Trump moves to remove or demote Powell in 2025, markets will be forced to reprice not just interest rates—but risk itself. Investors would do well to stay nimble, hedge where necessary, and pay attention—not just to earnings or inflation—but to Washington D.C., where the real market catalyst may be brewing.