As political rhetoric heats up ahead of the 2025 election, financial markets are bracing for what could be a seismic shock: the potential firing of Federal Reserve Chair Jerome Powell by Donald Trump. The former president, now leading the GOP polls, has repeatedly criticized Powell and hinted that if reelected, he would consider removing the central banker.
Now, Deutsche Bank is sounding the alarm. In a new note to clients, the bank warns that such a move could cause “both the currency and the bond market to collapse”, triggering a wave of financial instability that would ripple across global markets.
A Risk the Market Can’t Price In
“The market has no framework for pricing in a sudden change in Federal Reserve leadership, especially one motivated by political aims,” the note reads. Removing Powell could spark a crisis of confidence in both the U.S. dollar and the broader Treasury market, two cornerstones of global finance.
This comes at a time when investor trust in the independence of central banks is more important than ever. Inflation pressures remain, interest rate uncertainty persists, and financial markets are still digesting years of pandemic-era interventions.
“If Trump fires Powell, or even appears to weaken the Fed’s autonomy,” the bank stated, “you could see capital flee Treasuries, spike yields, and pressure the dollar in a way not seen since the early 1980s.”
Legal and Historical Precedent
While technically difficult to remove a Fed Chair without cause, Trump has previously explored legal loopholes and pressured Powell in ways no president has since the Fed gained independence.
According to legal scholars, the 1935 Banking Act protects the Fed Chair’s term, but gray areas remain, and a White House bent on reasserting control over monetary policy might push boundaries.
As seen in Millionaire MNL, such political tension could set off massive market uncertainty, regardless of the actual legal outcome.
Bond Yields Already Reacting
Bond yields rose sharply after Trump’s latest remarks, where he referred to Powell as “weak” and “out of touch.” Treasury traders are beginning to price in a more chaotic 2025 policy landscape, with several funds shifting out of long-dated bonds.
“The bond market doesn’t wait for paperwork,” a senior bond strategist told Millionaire MNL. “If there’s a credible risk of Powell being ousted, yields will surge overnight.”
Currency Shock Also Likely
Perhaps even more worrisome is the potential impact on the U.S. dollar, which underpins global trade and finance. Any suggestion that monetary policy is being manipulated for political reasons could lead to a sudden depreciation, destabilizing foreign exchange markets and threatening emerging market economies that rely on dollar stability.
“A politicized Fed is a weak Fed,” Deutsche Bank’s note continued. “And a weak Fed means a weak dollar.”
Will It Really Happen?
While Trump has not laid out a detailed plan to remove Powell, his language has shifted from criticism to outright confrontation. During a recent campaign rally, he said, “We need someone at the Fed who understands growth, not someone who chokes it.”
That line alone was enough to rattle markets. And while investors have grown used to Trump’s rhetorical flourishes, the possibility of real action this time around feels different.
