Trump has made it clear that he is considering firing Jerome Powell. However, one of the vice chairs of Evercore ISI, Krishna Guha, has warned that stocks and bonds would likely drop sharply if President Trump tried to fire the Fed’s Chair.
It almost seems like the markets are on Powell’s side. Soon after Trump criticized the Fed’s chair today, markets fell sharply. As of 11:30 a.m. Monday, the Dow Jones Industrial Average of the largest U.S. stocks was down 2.4%, the S&P 500 was down over 2.5%, and the Nasdaq composite was down almost 2.9%.
Now, if Trump goes further to get rid of Powell, it could be worse. Krishna Guha said, “If you actually did try to remove the Federal Reserve chairman, I think you would see a severe reaction in markets with yields higher, dollars lower and equities selling off. I can’t believe that that’s what the administration is trying to achieve.”
Krishna Guha asks Trump to let Fed’s Powell end his term
Trump has been attacking Powell, asking him to lower interest rates. However, Powell has refused to act and says he is not in a hurry. Trump has shown his frustrations, resulting in him wanting to fire Powell, though it might take time. Kevin Hassett, a White House aide, also said that the president’s team is looking into Powell’s removal from office.
When Powell was asked about this possibility, he said that he doesn’t think the president has the formal power to fire the Fed Chair.
The president could pressure Powell without firing him by making it clear to the public who he wants to name as Fed chair when the position opens up next year. This “shadow Fed Chair” could tell the markets that interest rates will be lowered once Powell is gone. Already, 58%, according to Polymarket, think Powell will be gone by next year.
Krishna Guha advises, “It’s strongly in the administration’s interest to take a deep breath and let Fed Chair Powell run things for the remainder of his term. That’s the best shot at keeping inflation expectations well anchored, keeping bond yields well behaved and allowing the Fed to cut without causing real problems in markets.”
US markets set for a volatile week
For the second week in a row, the S&P 500, Nasdaq, and Dow Jones will have very rough weeks. Wall Street investors are waiting to see if Trump can reach a tariff deal.
What will the terms and conditions be if a deal goes through? If there is news of a deal, both the NYSE and the Nasdaq will go into buying mode. However, trade worldwide will greatly affect the stock market this week.
During the week, some big companies will report their earnings. Tesla and Alphabet, the parent company of Google, are two of the “Magnificent Seven” mega-cap companies whose stocks have dropped after two years of stock market dominance.
Investors are paying close attention to their financial results as they try to figure out what will happen with tariffs that are still being negotiated. In 2025, all seven Magnificent Seven mega-cap stocks are down sharply.
Alphabet is down about 20%, and Tesla is down 40%. However, these reports could influence their stock surge or drop.
To get an idea of how likely it is that there will be some kind of tariff deal, investors will also listen to what US President Donald Trump has to say. There might be some buying if there are any good comments.
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