To The Moon

$S&P 500(.SPX)$ $NASDAQ(.IXIC)$

The Legal, Economic, and Political Stakes of Undermining the Federal Reserve’s Independence

As the 2024 election cycle intensifies, former President Donald Trump has reignited his feud with Federal Reserve Chair Jerome Powell. Trump has openly criticized Powell’s handling of monetary policy, particularly over interest rate decisions, and has once again floated the idea of firing him should he return to office. This hypothetical scenario — the removal of a sitting Fed Chair — would not only test the legal framework surrounding the central bank’s independence but could also rattle global markets and shake investor confidence in the stability of U.S. institutions.

Let’s explore what would happen if Trump were to follow through on this threat.

1. The Legal Minefield: Can a President Fire the Fed Chair?

The Federal Reserve Act of 1913 established the Federal Reserve System as an independent central bank, insulated from short-term political pressures. While the President appoints the Fed Chair, that person serves a four-year term and can only be removed “for cause.” The ambiguity around what qualifies as “cause” has never been directly tested in court, because no President has ever attempted to remove a Fed Chair for policy disagreements.

If Trump were to attempt to fire Powell without clear legal grounds, it would almost certainly result in a major constitutional and legal battle. Powell could contest his dismissal in federal court, arguing that the President does not have the authority to remove the Chair arbitrarily. The outcome of such a case would set a landmark precedent regarding executive power and the autonomy of independent agencies.

Adding to the legal complexity, the U.S. Supreme Court is currently reviewing cases related to the President’s power to fire heads of independent agencies. A decision in favor of expanded presidential authority could embolden Trump, while a decision reaffirming limits on that power would strengthen Powell’s position.

2. Economic Shockwaves: Market Reactions Would Be Swift and Severe

Markets place a high premium on the Federal Reserve’s independence. The Fed’s credibility — and by extension, its ability to control inflation, stabilize the economy, and guide expectations — is built on the notion that it is immune to partisan political interference. If that perception were to change, the implications would be dramatic:

• U.S. Dollar Weakness: The dollar could sell off sharply as investors lose confidence in the stability of U.S. monetary policy. Indeed, following recent Trump comments targeting Powell, the dollar already slid to a 10-year low against the Swiss franc.

• Gold Surge: Investors typically flock to safe havens like gold during periods of uncertainty. Gold prices recently surged to all-time highs amid fears of Fed politicization.

• Bond Market Volatility: Treasuries, which are considered the safest assets in the world, could become more volatile. Investors may demand higher yields to compensate for perceived political risk.

• Equity Market Instability: Stocks could experience a correction, particularly rate-sensitive sectors like banks and real estate, as uncertainty around future Fed policy would cloud earnings forecasts and increase the risk premium on U.S. assets.

3. Institutional Credibility at Risk: The Erosion of the Fed’s Independence

Perhaps the most enduring consequence of firing Powell would be the damage to the Fed’s institutional credibility. Over the last several decades, central banks around the world — including the Fed — have worked hard to maintain their independence as a means of protecting economies from the whims of electoral politics. If the perception takes hold that the Fed Chair can be dismissed for refusing to accommodate a President’s economic agenda, it sets a dangerous precedent.

This erosion of credibility could:

• Undermine the effectiveness of future monetary policy

• Increase inflation expectations regardless of actual inflation levels

• Trigger capital flight from the U.S. to more politically stable economies

• Reduce the willingness of foreign governments and investors to hold U.S. debt

Additionally, the move would likely draw bipartisan condemnation in Congress and provoke criticism from global financial institutions, further isolating the U.S. economically and diplomatically.

4. The Powell Factor: Would He Resign?

Powell, a former private equity executive and moderate Republican, has indicated he has no intention of stepping down under political pressure. If Trump demanded his resignation and Powell refused, it could turn into a high-profile constitutional standoff, potentially leaving the Fed in limbo while the courts sort out the issue.

This scenario would only heighten uncertainty, prolong market volatility, and draw out headlines that emphasize instability and dysfunction in the American political system.

5. Strategic Motive: Why Would Trump Want to Fire Powell?

Trump’s desire to fire Powell stems primarily from a belief that the Fed is not easing monetary policy fast enough to support economic growth — especially ahead of a potential second term. Trump has long favored low interest rates to boost stock prices and housing affordability, even at the risk of higher inflation. He’s also floated more radical policy ideas, like tying the dollar to gold or other hard assets, which Powell and most economists have firmly rejected.

By installing a more pliant Fed Chair, Trump could attempt to exert more direct control over monetary policy — potentially pushing for lower rates or even monetization of fiscal deficits.

6. The Bigger Picture: A Constitutional Stress Test

In many ways, this situation mirrors broader trends: increasing executive overreach, eroding guardrails around independent institutions, and the weaponization of appointments for political gain. The attempted removal of Powell would be more than just a personnel shakeup — it would represent a constitutional stress test on the balance of power between the White House and America’s most important economic institution.

Conclusion: A High-Risk Gambit With Global Ramifications

If Trump were to fire Jerome Powell, the fallout would be swift and far-reaching. Legally, it would trigger an unprecedented constitutional battle. Economically, it could cause a spike in volatility, a loss of faith in U.S. markets, and increased recession risk. Politically, it would likely provoke widespread backlash and accelerate the erosion of trust in American institutions.

In an already fragile global economy, the consequences of undermining the Federal Reserve’s independence would go far beyond partisan politics — and could reverberate for years to come.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

@Daily_Discussion @TigerPM @TigerObserver @Tiger_comments @TigerClub