The possible dismissal of Fed Chairman Jerome Powell by the Trump administration poses significant risks for the financial markets, particularly in the bond market. The administration’s attacks on Powell have intensified in recent weeks, encompassing not only criticism of monetary policy but also allegations of mismanagement and substantial cost overruns in the renovation work at the Fed’s headquarters in Washington.
Political Pressure and Market Reactions
Although President Trump has publicly stated that he does not intend to dismiss Powell before the end of his term in early 2026, his attacks have become almost daily and increasingly sharp. A prominent economic advisor from Trump’s circle has also emphasized that Powell’s dismissal is possible “if there is a reason.” This particularly references the cost overruns of about $700 million for the renovation of the Fed building.
Impact on the Bond Market
This uncertainty is already affecting the markets: there is a sell-off of bonds with rising yields, especially in long-term government bonds – a global phenomenon that is also exacerbated by domestic political uncertainties. For investors, this development is highly relevant, as a sudden or forced removal of the Fed chairman could lead to significant upheavals. The independence of the U.S. Federal Reserve is considered central to stable monetary policy; political interference could undermine confidence and increase volatility in the financial markets.
Legal Uncertainty
Additionally, there are legal uncertainties: a recent Supreme Court ruling seems to provide the Fed chairman with at least some protection against arbitrary dismissal by the president.
Overall, a prominent analyst warns that this situation is associated with high risks for investors. The combination of political attacks on the central bank leadership and the resulting market reactions makes this development particularly incendiary for investors worldwide.