Trump-Powell Feud Escalates: Betting Markets' Top Picks to Replace Fed Chief

The Trump-Powell feud is escalating, with betting markets showing a 70% chance Powell will be replaced. This would be a blow to Fed independence. The top four frontrunners to replace Powell are Treasury Secretary Scott Bessent (23% odds), former Federal Reserve Governor Kevin Warsh (18%), Stanford University economist John Taylor (12%), and former Obama administration economist Jason Furman (7%).

The Trump-Powell feud has escalated, with betting markets indicating a 70% chance that Federal Reserve Chair Jerome Powell will be replaced. This potential move would significantly impact the independence of the Federal Reserve, a cornerstone of U.S. monetary policy. The top four frontrunners to replace Powell are Treasury Secretary Scott Bessent (23% odds), former Federal Reserve Governor Kevin Warsh (18%), Stanford University economist John Taylor (12%), and former Obama administration economist Jason Furman (7%) [1].

The latest political developments come on the heels of a closed-door meeting where President Trump showed a draft letter to House Republicans, indicating his intention to fire Powell. Trump's allies have cited the Fed's $2.5 billion renovation project as a possible ground for removal "for cause" [1]. This move would mark the first time in modern U.S. history that a president attempts to remove a Federal Reserve chair without cause, potentially sparking a constitutional crisis and rattling global markets.

The probability of Powell being ousted has climbed to over 20% on Kalshi, a CFTC-regulated prediction market platform, reflecting the heightened political risk [1]. This increase in risk comes after a New York Times report revealed that Trump had shown a draft letter firing Powell during a closed-door meeting with House Republicans.

Adding to the tension, the latest Producer Price Index (PPI) report revealed that inflationary pressures are continuing to ease. U.S. producer prices were flat in June, missing estimates for a 0.2% gain and down from a 0.3% increase in May. The decline was driven by a 0.1% drop in services costs, with a sharp 4.1% fall in traveler accommodation services leading the slide. Goods prices rose 0.3%, mainly due to an uptick in communication equipment, gasoline, electricity, and some food items. On a year-over-year basis, PPI cooled to 2.3%—its slowest pace since September 2024—while core PPI came in flat for the month and slowed to 2.6% annually, both below expectations [1].

Trump and his allies have also started targeting the Fed's $2.5 billion renovation project, suggesting it may provide grounds for Powell's removal "for cause." Federal Housing Finance Agency Director Bill Pulte wrote on X that there is a strong legal basis to terminate Powell, citing the renovation project [1]. Treasury Secretary Scott Bessent also mentioned that a formal process has begun to identify Powell's successor, though he clarified that firing Powell is highly unlikely unless he has to leave for fraud [1].

As speculation builds over Powell's possible removal, attention is quickly turning to who could take the helm at the Fed. Kevin Hassett leads the field with a 34% chance of being nominated, followed by Kevin Warsh at 32%, Christopher Waller at 18%, and Treasury Secretary Scott Bessent at 14% [1]. Each candidate brings a different policy stance, with both Hassett and Warsh seen as more aligned with Trump's preference for looser monetary policy—a stance that could significantly shift the Fed’s current trajectory if Powell is ousted.

Kevin Warsh, a former Fed governor and one of Trump’s top picks to lead the central bank, has called for major changes at the Fed and criticized current leadership, especially Jerome Powell. He backed Trump’s push for rate cuts and aligned with his demand for Powell’s removal. Warsh wants Powell gone and has positioned himself as the guy who can rip up the Fed’s current playbook and build a tighter partnership with the Treasury Department [2].

The potential replacement of Powell by someone more aligned with Trump's preferences could lead to significant changes in monetary policy, potentially impacting inflation rates, interest rates, and the overall economic landscape. Investors and financial professionals should closely monitor these developments, as they could have substantial implications for the U.S. economy and global markets.

References:
[1] https://www.benzinga.com/markets/macro-economic-events/25/07/46454852/trump-fed-powell-odds-inflation-markets
[2] https://www.cryptopolitan.com/kevin-warsh-calls-for-fed-treasury-alliance/