Trump and Powell: The Pinnacle Battle of Seven Years of Political and Economic Games

Trump's criticism of Powell has a long history, and now he is using the controversy over renovations as an excuse to try to force him to resign. This seemingly absurd political drama is pushing global markets to the brink.

What kind of pressure is Powell facing today? If he is forced to step down, what kind of market turmoil will it trigger?

Trump and Powell: Seven Years of Grudges and Affections

The core of the conflict between Trump and Powell lies in the direction of monetary policy: one advocates for interest rate cuts, while the other insists on not cutting. This divergence has continued since 2018.

Interestingly, Powell's appointment originally stemmed from Trump's nomination. In February 2018, Powell officially took office as the Chairman of the Federal Reserve. At that time, Trump hoped that he would implement loose monetary policies to promote economic growth.

However, just a few months later, the relationship between the two took a sharp turn for the worse. In October 2018, Trump publicly criticized Powell for the Federal Reserve's rapid interest rate hikes, calling it the "greatest threat" and accusing Powell of "losing his mind." Since then, their conflicts have become public, and the war of words has continued unabated.

In 2022, Powell was nominated for reappointment, extending his term to May 2026. With the arrival of the 2024 election year, the situation further heated up. Trump repeatedly criticized Powell during the campaign for "slow action and ineffective rate cuts," and repeatedly called for his resignation.

However, removing the Chairman of the Federal Reserve is not an easy task. U.S. law stipulates that the President does not have the authority to dismiss the Chairman of the Federal Reserve due to policy differences unless there is conclusive evidence of "misconduct or gross neglect."

In July of this year, the situation took a turn. Trump's camp suddenly made new accusations: demanding Congress investigate Powell, claiming he had "political bias" and "perjured himself in Congress," and accusing the Federal Reserve's headquarters renovation project of significant violations.

At the same time, there are rumors that Powell is "considering resigning," causing the entire event to escalate rapidly. After seven years of power struggles, it has finally reached a climax.

Powell's Predicament

Former Federal Reserve economist admitted: "The Federal Reserve is in a dilemma."

Currently, Powell is facing a tricky policy dilemma: on one hand, there is the tariff policy that may bring upward pressure on prices, and on the other hand, there are signs of a cooling labor market. This dual pressure poses a significant challenge to the Federal Reserve's decision-making.

If the Federal Reserve lowers interest rates too early, it may lead to uncontrolled inflation expectations; if it chooses to raise rates to curb inflation, it could trigger turmoil in the bond market, a surge in interest rates, and even provoke a "financial panic."

In addition to the economic difficulties, Powell also faces intense political attacks. In the face of pressure from Trump, he chose to fight back. Powell has requested that the Inspector General continue to review the headquarters renovation project and respond in detail through official channels to the reasons for the rising costs, refuting the accusations of "luxurious decoration."

The dual pressure of the economy and politics is making Powell experience the most difficult moment of his career.

The Potential Impact of Powell's Departure

If Powell resigns under pressure, the "pricing anchor" of the global financial markets may be shaken.

The global head of foreign exchange strategy at a certain bank analyzed that if Powell is forcibly removed, the dollar index could plummet by 3%-4% within 24 hours, and the fixed income market may experience a sell-off of 30-40 basis points. The dollar and bonds will face persistent risk premiums, and investors may also worry about the politicization of the Federal Reserve's currency swap agreements with other central banks.

The expert further pointed out: "What is even more concerning is the current fragile external financing situation of the U.S. economy, which may lead to more severe and destructive price fluctuations than expected."

A strategist team from another international bank believes that the "likelihood of Powell resigning early is low," but if it were to happen, it would lead to a steepening of the U.S. Treasury yield curve, as investors would anticipate falling interest rates, accelerating inflation, and a weakening of the Federal Reserve's independence. They also pointed out that this would create a "deadly combination" for dollar depreciation.

From the perspective of risk assets, even if Trump successfully replaces the chairman of the Federal Reserve, he may not be able to fully control the Fed's policies. If inflation rises again, the new chairman may ultimately have to return to a tightening path. If the Federal Reserve begins to cut interest rates in September under conditions of economic stability and low unemployment, risk assets may benefit in the short term, including the crypto market. However, current interest rates are still at 4.5%, and the liquidity that needs to be released later is still quite substantial.

If Powell's position wavers slightly, the market may experience violent fluctuations. This is not only a game of monetary policy but also a struggle concerning power and independence.