Firing the Fed Chair Would Shake Markets and Undermine U.S. Economy, Experts Warn

As President Donald Trump approaches his second term, renewed speculation about the future of Federal Reserve Chairman Jerome Powell is sending tremors through financial markets.

Trump has long criticized Powell for not cutting interest rates aggressively enough and has publicly floated the idea of removing him. While no formal move has been made, strategists warn that such a decision would severely damage market confidence and U.S. economic stability.

“He would very much like to fire Powell and lower interest rates—that’s very clear,” said Kathy Jones, chief fixed-income strategist at the Schwab Center for Financial Research. “I wouldn’t be surprised if he ignores the advice he’s been given and tries to make it happen.”

The independence of the Federal Reserve has traditionally been a cornerstone of U.S. economic policy, and any attempt to politicize it could have far-reaching consequences. On Thursday, Trump renewed his attacks on Powell via social media, dubbing him “Too Late Jerome” for refusing to follow the European Central Bank’s lead in cutting rates.

Powell, however, has reiterated the Fed’s cautious approach, saying the central bank will monitor the effects of tariffs and other economic pressures before deciding on further rate moves. When asked whether the Fed would intervene if markets plunged, Powell was direct: “No.”

The Fed cut interest rates in September 2024 for the first time since the pandemic began, but has kept them steady throughout 2025. Following Powell’s comments, markets ended Thursday mixed, with the Nasdaq falling slightly and the S&P 500 inching higher.

Behind the scenes, White House officials have reportedly advised Trump against removing Powell. Politico reported that Treasury Secretary Scott Bessent warned the move could rattle markets. Legally, the president’s authority to remove the Fed chair remains unclear. Powell has said the law protects the Fed from politically motivated firings.

However, a pending Supreme Court case, Trump v. Wilcox, could shift that balance. A ruling in Trump’s favor might expand presidential power and erode protections for independent agencies, potentially clearing the path for Powell’s removal.

Despite these developments, some on Wall Street are still brushing off the threat. “Are they taking him seriously or just ignoring the potential problem? Seems like the latter,” said Steve Sosnick, chief strategist at Interactive Brokers.

Others, including Democratic Senator Elizabeth Warren, have warned that firing Powell could crash the markets. While Sosnick didn’t go that far, he emphasized the importance of institutional credibility. “We underestimate how vital institutions like a nonpartisan judiciary and an independent Fed are to foreign investors,” he said.

Jay Hatfield, portfolio manager at Infrastructure Capital, argued that Trump may have grounds to fire Powell, citing the Fed’s delayed response to surging inflation in 2021. “He absolutely can fire him, and Powell can sue,” Hatfield said.

Still, most analysts agree the fallout from such a move would be severe. Jones warned that removing Powell would likely trigger a sharp selloff in both Treasurys and the dollar—behavior more typical of emerging markets than the U.S.

“It’s just not something that happens in major developed economies,” she said. “Even if a new chair is well-received, the damage to credibility would already be done. Bond yields would spike, the dollar would fall—you lose the trust of global markets.”

U.S. stocks have already been volatile in 2025. On Thursday, the Nasdaq Composite slipped 0.1% to 16,286.45. The S&P 500 rose 0.1% to 5,282.70, while the Dow Jones Industrial Average dropped 1.3% to close at 39,142.23.