Trump-Powell Feud Fuels Crypto Volatility Amid Rate Cut Speculation

President Donald Trump and Federal Reserve Chair Jerome Powell are at odds, with investors considering whether political pressure could lead to rate cuts that typically boost risk assets like Bitcoin. The dispute arises as Republican frustration grows over the Fed's "higher-for-longer" stance on interest rates, which many in the GOP blame for slowing growth in equity and crypto markets.

Trump reportedly had a resignation letter for Powell drafted and placed on his desk last week. Despite receiving positive responses from polling Republican lawmakers, Trump reportedly held back from taking action. Jim Bianco, president of a macro investment firm, suggested that Trump may name a successor to weaken Powell before his term expires, creating a “shadow” central bank chief. Bianco predicted that markets expect swift easing under Trump’s pick, with the long-end of the yield curve soaring in response.

Traders are now pricing in just two rate cuts this year. Any talk of firing Chair Powell unsettles market confidence, especially in crypto, where trust is key. A ‘Shadow Fed’ clouds rate cut signals, boosting volatility and complicating price discovery. While Trump hasn’t moved to oust Powell, the rhetoric has sparked speculation that a future Fed pick might favor rate cuts and lift risk assets, at least in the short term. However, these leadership quarrels “often trigger short-term crypto price swings due to uncertainty.”

If control centralizes with little oversight, crypto could increasingly be seen as a safe haven. The Federal Reserve Act protects Powell from removal except “for cause” misconduct or malfeasance, not policy disagreements. Legal precedent from Humphrey's Executor v. United States (1935) established this independence, affirming that the president cannot dismiss officials from independent agencies, such as the Federal Reserve, over policy disagreements. The ruling drew a line between executive authority and the autonomy of regulatory bodies, meaning Trump cannot legally fire Powell simply for maintaining higher interest rates.

Still, there are other ways to apply pressure without formal removal. Trump could continue criticizing Powell in public, a frequent and toxic approach he often utilizes. He could also have Congress hold ‘hostile’ or adversarial hearings about the Federal Reserve, while weaponizing or abusing processes calling for budget reviews, red tape, and other aggressive conditions against the Fed in efforts to make their life more difficult. The Fed could also file lawsuits that challenge some Fed decisions, “arguably wasting resources of the court.”

On Monday, a Trump ally escalated matters by filing a criminal referral against Powell, claiming he “knowingly misled” Congress about the costs of the Fed’s headquarters renovation. While firing Powell might temporarily boost crypto prices due to dollar weakness and rate cut expectations, it would fundamentally undermine the stable financial system that crypto ultimately depends on. For the short term, “crypto might temporarily benefit as a ‘chaos hedge’ against dollar weakness and Fed politicization,” but for the long run, “maintaining a destabilized U.S. financial system could hurt a significant, if not the majority, of risk assets—crypto included.”