Markets Surge and Roll Back on Rumors of Trump Firing Fed Chair Powell

16 July 2025

Sha Hanting/China News Service/ Credit: ASSOCIATED PRESS

Markets swung sharply on July 16 after reports suggested President Trump might remove Federal Reserve Chair Jerome Powell, rattling investor confidence before the rumors were clarified. According to a Bloomberg story cited by Reuters, insiders indicated Trump was considering firing Powell amid complaints about the Fed’s reluctance to lower rates, prompting a sell-off in U.S. stocks and a plunge in the dollar that sent Treasury yields higher.

This volatility illustrates the market’s sensitivity to any threat against the Fed’s independence. One FX strategist noted that undermining Powell’s autonomy could “absolutely destroy faith in the U.S. dollar” and destabilize the broader financial system. In response to the headlines, the dollar index shed nearly 0.2 percent, falling to around 98.38, while the euro strengthened to about $1.1629.

Treasury yields also climbed as investors recalibrated expectations of prolonged rate-tightening. The 10-year yield edged higher, reflecting concerns that any move to dismiss Powell could jeopardize monetary policy stability . U.S. stock indexes followed suit, with the S&P 500 briefly dipping nearly 1 percent before rebounding after Trump denied the intention to fire Powell.

Trump’s public denial didn’t fully reassure markets, however. He stopped short of ruling out a removal, stating that it would only occur if Powell were implicated in serious misconduct, referring to recent cost-overrun criticism of a $2.5 billion Fed building renovation. “I don’t rule out anything, but I think it’s highly unlikely unless he has to leave for fraud,” Trump said.

The political tension triggered immediate backlash on Capitol Hill. Senators including Thom Tillis and Majority Leader John Thune reiterated the essential importance of Fed independence. Tillis warned that using Fed leadership as a political tool would severely damage U.S. credibility, while Thune clarified that Trump had no current plans to remove Powell.

The episode reflects broader unease over Trump-era economic policy, where aggressive tariff strategies and political intrusion into monetary affairs have fueled an "anti-bubble" in the dollar. According to Bank of America, sentiment toward U.S. assets has turned markedly negative, with the “short-dollar” trade now the most crowded in global markets and euro exposure at a 20-year peak. HSBC warns that prolonged distrust may distort traditional market behavior and create unforeseen volatility ahead.

Analysts argue that even the perception of political meddling could have lasting repercussions. Deutsche Bank cautions that the market has significantly underestimated the fallout from a potential removal, predicting sharp drops in the dollar, bond prices, and overall financial confidence.

For investors, the episode confirmed one thing: monetary independence remains central to market stability. As one trading director put it, “what can kill the value of the U.S. dollar… is attacking in any way, shape, or form the independence and authority of the Federal Reserve”.

Ultimately, the story may settle with Powell staying in place, but the tremors, dollar swings, Treasury yield shifts, and congressional alarm may linger. The debate has already shifted market sentiment, affirming that financial markets are poised to react swiftly to any suggestion that political power is encroaching on economic governance.