President Trump has suggested that Federal Reserve Chair Jerome Powell should resign if claims of misleading lawmakers about renovations are substantiated. This reflects ongoing tensions between Trump and Powell regarding monetary policy, particularly Trump’s demand for aggressive interest rate cuts. Powell has reaffirmed his commitment to the Fed's independence and denies misleading information. Analyst George Saravelos believes that the market underestimates the risk of Powell's dismissal, forecasting potential significant declines in the US dollar and Treasuries should such an event occur.
George Saravelos, Deutsche's global head of FX strategy, emphasized the market is "pricing a very low probability" of Powell being removed from office, reflected in Polymarket’s less than 20% chance assignment.
Saravelos noted that should Trump force Powell out, a drop of 3% to 4% in the trade-weighted dollar and a 30 to 40 basis point fixed-income selloff could be expected within 24 hours.
He pointed out that if Powell is dismissed, "Investors would likely interpret such an event as a direct affront to Fed independence," which may lead to growing anxiety regarding the Fed's integrity.
Saravelos concluded by stating, "With the Fed sitting at the pinnacle of the global dollar monetary system, it is also stating the obvious that the consequences would reverberate through financial markets."
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