U.S. director of federal housing Pulte: I'm encouraged by reports that Jerome Powell is considering resigning. I think this will be the right decision for America, and the economy will boom

U.S. director of federal housing Pulte: I'm encouraged by reports that Jerome Powell is considering resigning. I think this will be the right decision for America, and the economy will boom

The possibility of Jerome Powell stepping down as the Chair of the Federal Reserve has been a topic of recent speculation, particularly following President Donald Trump's public calls for his resignation. While the likelihood of Powell leaving before his term expires in May 2026 remains low, the implications of such an event for the financial markets are significant.

Powell's potential departure has been discussed in the context of a "super-dove" replacement, a candidate who might lean more dovish in monetary policy decisions. This scenario could potentially shift the Federal Open Market Committee (FOMC) towards more accommodative policies, with a bias towards rate cuts. However, it is important to note that the FOMC's decisions are based on a majority vote, and the committee's division on monetary policy remains a key factor.

One of the immediate impacts would be on Treasury yields. The 2-year yield, currently at 3.9%, could potentially drop below 3% based on market expectations of rate cuts. This could lead to a steeper yield curve, with front-end yields falling and longer-term yields rising. The 10-year yield, currently at 4.4%, might not drop as significantly due to concerns about long-term inflation risks.

Equity markets could initially react negatively to the forced resignation of a reputable Fed Chair. However, the markets might reassess and rally if they perceive deep rate cuts as beneficial for corporate profits and economic growth. Inflation, while a risk, could also be seen as a positive for equities.

The dollar's value as a reserve currency is fundamentally tied to the Fed's independence. A forced resignation of Powell could trigger severe downward volatility in the dollar, potentially leading to a significant depreciation. The euro, Japanese yen, and Swiss franc are likely to benefit from a weaker dollar.

Emerging markets, particularly those with high levels of carry trade exposure, could face initial volatility and value-at-risk de-leveraging. However, longer-term prospects for commodity-producing currencies could improve as they are seen as inflation hedges.

In conclusion, while the probability of Powell's early departure is low, the potential implications for financial markets are substantial. Investors should closely monitor the situation and be prepared for market adjustments based on the Fed's future policy direction.

References:
[1] https://think.ing.com/articles/what-if-powell-leaves/
[2] https://stocktwits.com/news-articles/markets/equity/donald-trump-says-jerome-powell-costing-us-1-trillion-a-year-calls-for-rate-cuts/chFybf8R50t