What’s Happening With Trump and Jerome Powell? Markets Panic Over Firing Threat

A White House official said that during a meeting with congressional Republicans, President Donald Trump discussed whether to remove Federal Reserve Chair Jerome Powell and even showed a draft dismissal letter. Lawmakers present largely supported the move.

The news sent shockwaves through financial markets. The U.S. dollar index tumbled as global investors reassessed the credibility of the dollar.

U.S. Treasury bonds were sold off sharply, pushing yields higher. Traders feared that the independence of the Federal Reserve might be undermined, potentially increasing inflation expectations.

Safe-haven demand surged—gold prices jumped and U.S. equities plunged sharply.

But just one hour later, Trump abruptly reversed course—issuing a rapid “TACO” (Trump Always Chickens Out) and denying any intention to fire Powell. The market exhaled in relief: the dollar rebounded, bond yields fell, and gold retreated.

Can Trump Legally Fire Powell? Yes, But It’s Complicated

The President does technically have the authority to remove the Fed chair, but legally, it’s very difficult—and there’s no precedent in modern U.S. history.

Under the Federal Reserve Act of 1913, the chair can be removed only “for cause,” a phrase widely interpreted to mean serious misconduct or malfeasance.

Recently, Trump and several White House officials have accused Powell of mismanaging the Fed’s controversial renovation project, which allegedly ran $700 million over budget. They have floated this as potential grounds for “cause.”

However, Powell denied any luxury spending during a congressional hearing and made public the breakdown of renovation expenses. So far, no evidence of fraud or misconduct has emerged.

Even if Trump moves to dismiss Powell, the Fed chair must be given official notice of the charges before the removal becomes effective and would have the right to respond. Powell could then sue in federal court and request a preliminary injunction to be reinstated. The case could drag on through the appeals process—possibly all the way to the Supreme Court—by which time Powell’s term might already be over.

Wall Street Unites Behind Powell, Defends Fed Independence

Wall Street is deeply concerned. Financial institutions place immense value on the independence of the Federal Reserve—and this time, nearly the entire financial establishment stood behind Powell.

Jamie Dimon, CEO of JPMorgan Chase and one of the most influential voices on Wall Street, warned: “The Fed’s independence is absolutely critical—not just for Chairman Powell, but for whoever holds the job in the future. Undermining the Fed usually backfires and may produce outcomes entirely opposite to what President Trump hopes for.”

Republican Senator Thom Tillis of North Carolina, a member of the Senate Banking Committee (which oversees the Fed and confirms presidential appointments to the Board), also issued a strong defense of central bank independence: “The Fed’s independence is vital for financial and price stability. Bringing the Fed directly under the President’s control would be a HUGE MISTAKE.”

Tillis added: “Dismissing a Fed chair just because politicians disagree with their economic decisions would severely harm U.S. credibility. We must not let that happen.”

Multiple financial leaders echoed this sentiment, warning that firing Powell would impair the Fed’s ability to pursue price stability and full employment.

Michael Feroli, Chief U.S. Economist at JPMorgan, noted: “Any weakening of the Fed’s independence raises upside inflation risks. That, in turn, would push long-term interest rates higher, because investors would demand greater protection against inflation—ultimately increasing borrowing costs for the U.S. government, not lowering them.”

Indeed, the bond market confirmed his analysis—Treasury yields surged after the firing rumors surfaced.

Juan Perez, senior trading director at Washington-based MONEX USA, said: “Attacking the Fed’s independence in any way would destroy confidence in the dollar. The dollar is a safe-haven asset during crises—be it natural disasters, financial shocks, or geopolitical conflicts. But if the institution behind the dollar loses credibility, investors will abandon it.”

Pricing the “TACO” Trade: The Risk Isn’t Over

Trump may have backtracked this time—but will he always back down?

Tara Sinclair, an economist at George Washington University, observed: “The market thinks Trump is playing a game of chicken. But the closer he gets to actually doing it, the higher the risk becomes. If Trump keeps retreating, his political brand collapses. No president will allow that.”

Markets may have calmed—temporarily—but with Trump, every bluff brings the real risk one step closer.