According to recent reporting from CNBC and The New York Times, Trump allegedly drafted a letter seeking Powell’s removal before backing away. While he has denied any immediate action, he’s kept the pressure on, recently posting on Truth Social: “Lower the Rate, Too Late.”
This isn’t just another political spat. If Trump actually follows through, the market reaction could be seismic—and Bank of America (BofA) strategist Michael Hartnett is already laying out a roadmap for investors to prepare.
Why Trump May Want Powell Out
The friction between Trump and Powell is rooted in economic philosophy and politics. Trump has long criticized the Fed for keeping rates too high, especially during election cycles. Now, with the 2026 campaign season heating up and Trump’s economic agenda facing budgetary constraints, he appears to see Powell as an obstacle.
As Hartnett noted in his weekly “Flow Show” report:
“U.S. government spend = $7 trillion and Trump can’t cut $4 trillion mandatory spending, has backed off cutting $1 trillion of discretionary spend … and $1 trillion of defense spend.”
Translation: Trump needs growth to justify deficits and maintain voter confidence—and interest rate cuts are the most immediate lever. But Powell has remained cautious, insisting inflation must be firmly under control before further easing.
That puts the two men on a collision course.
Historical Context: Political Pressure on the Fed Isn’t New
To be fair, presidents pushing for easier monetary policy is nothing new. George H.W. Bush blamed Fed Chair Alan Greenspan’s reluctance to cut rates for his 1992 reelection loss. Lyndon B. Johnson and Richard Nixon also leaned heavily on the Fed during their presidencies.
But what sets Trump apart is his willingness to confront Powell in public and threaten removal. No president in modern history has gone this far—and that’s what’s rattling investors.
Could Trump Actually Fire Powell?
Technically, it’s unclear whether a president can fire a sitting Fed Chair before their term ends without cause. Powell’s current term as Chair runs through 2026. Legal scholars are divided, but many agree that removing Powell without proving legal cause would likely spark a constitutional crisis and a legal challenge.
Still, the mere threat has consequences. Markets respond to uncertainty, and a major leadership change at the central bank would trigger global risk repricing.
Bank of America’s “Trump Fires Powell” Playbook
Assuming Trump fires Powell—or forces a resignation—Bank of America’s Hartnett outlines a set of strategic trades to prepare for the fallout.
Here’s a breakdown of the BofA roadmap and why each trade makes sense:
1. Short the U.S. Dollar (USD)
Rationale: A sudden change in Fed leadership, especially one that leads to more aggressive rate cuts, would signal a debasement of the U.S. dollar. Investors would flee to alternative stores of value.
Investment Strategy:
- Short DXY (Dollar Index) via inverse ETFs like UDN (Invesco DB US Dollar Index Bearish Fund).
- Consider long positions in currencies like the euro (EUR) or Japanese yen (JPY).
2. Go Long Gold and Cryptocurrency
Rationale: Gold and Bitcoin are classic “anarchy hedges.” If the market perceives political interference in the Fed as a threat to central bank independence, these assets could surge as safe havens.
Investment Strategy:
- Long gold via ETFs like GLD or physical bullion.
- Long Bitcoin or altcoins through spot ETFs like IBIT, or direct holdings on Coinbase or Ledger.
Performance Comparison:
| Asset | YTD Return (as of July 2025) |
|---|---|
| Gold (GLD) | +15.4% |
| Bitcoin (BTC) | +72.3% |
| Ethereum (ETH) | +61.8% |
3. Short the 30-Year Treasury Bond
Rationale: Cutting rates into a booming economy, without a recession trigger, is deeply unorthodox. It could unnerve bond markets and push long-term yields higher.
Investment Strategy:
- Short via ETFs like TBT, which profits from rising yields.
- Avoid long-dated Treasurys unless hedged.
4. Go Long a Barbell of U.S. Tech and Emerging Market/Value Stocks
Rationale: Lower interest rates would reignite appetite for U.S. growth and tech stocks, but also provide a tailwind for global risk assets—especially emerging markets (EM) and EAFE (Europe, Australasia, and Far East) value stocks.
Investment Strategy:
5. Buy Volatility
Rationale: If Trump shocks markets by removing Powell, expect a surge in market volatility. A jump in the VIX (CBOE Volatility Index) would be likely.
Investment Strategy:
How Might Markets React?
Markets may not immediately plunge—especially if Powell’s successor is viewed as dovish. But over the medium term, investors could worry about:
- Loss of Fed credibility
- Political capture of monetary policy
- Accelerated inflation if rate cuts are premature
- Weakening of the U.S. dollar as a global reserve currency
On the flip side, aggressive rate cuts could turbocharge risk assets—tech stocks, crypto, small caps—in the short term.
What Investors Should Watch
If you’re managing your portfolio through this potential shock, here are the key indicators to monitor:
| Indicator | What It Signals |
|---|---|
| Powell resignation chatter | Risk of immediate market shock |
| Fed meeting language | Clues on policy pivot or Powell doubling down |
| Dollar Index (DXY) | Confidence in U.S. policy stability |
| Gold and BTC price | Investor demand for hedges |
| 10-year yield | Inflation expectations and market confidence in Fed |
| VIX (Volatility Index) | Risk-on vs. risk-off sentiment |
Final Thoughts
Whether Trump actually fires Powell or not, the fact that markets are entertaining the idea tells you everything you need to know about the level of uncertainty in today’s economic landscape.
For investors, the message is clear: the Fed is no longer a neutral actor. Political pressure is growing, and that means the old playbook may no longer apply. Flexibility, diversification, and a close eye on macro signals are no longer optional—they’re survival tools.
Bank of America’s suggested trades may not fit every portfolio, but they offer a valuable framework to think through how to hedge against—or profit from—a potential Fed shakeup.
Sources
- CNBC: Trump moves toward firing Fed Chair Powell
- The New York Times: Trump Drafted Letter to Oust Powell
- Truth Social Post by President Donald Trump: “Lower the Rate, Too Late” (2025-07-10)
- Bank of America “Flow Show” Report (via reporting summaries)
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