In April, when President Donald Trump mentioned firing Federal Reserve Chair Jerome Powell, investors panicked. The dollar and stocks tumbled as traders worried that even discussing such a move would cross a red line. However, this past July, when Trump showed lawmakers a draft of Powell’s termination letter, the market shrugged it off.
Now, with Trump making good on his threat to fire Powell over a costly renovation at the Federal Reserve headquarters, markets are on high alert. The US has never been this close to seeing what happens when a president tries to unseat the Fed chair.
Investors believe that firing Powell would be a direct affront to the central bank’s independence, which is crucial for managing inflation. However, some experts argue that investors may become so accustomed to market fluctuations and Trump’s sudden changes in policy that they no longer value the Fed’s independence as much.
The TACO trade, which suggests that markets tend to recover when Trump makes a threat, has proven profitable this year. If there’s a sell-off, investors wait for Trump to change his mind or scale back the offending policy before buying back in. However, some analysts worry that traders may be prioritizing lower interest rates over concerns about the Fed’s independence.
As the market reacts to Trump’s move, it’s essential to consider whether he perceives investor reactions as a trial balloon to gauge how markets would react if Powell were indeed fired. This could increase his willingness to take action, making the situation more uncertain for investors.
Source: https://edition.cnn.com/2025/07/17/business/wall-street-trump-fire-fed-powell-nightcap