From Appointee to Showdown: Trump and Powell's Seven-Year Power Struggle, Resignation Storm or Turmoil Trigger

Original Title: "Seven Years of Grudges Coming to a Head: Trump's 'Forced Resignation' of Powell, What Will the Resignation Storm Bring?"

Original Author: Fairy, ChainCatcher

Can a "Renovation" Really Remove the Fed Chair?

Trump started "bombarding" Powell as early as the election period and is now using the controversy over renovation to enter the fray and force Powell to resign. This seemingly absurd political drama is pushing global market sentiment to a critical point.

What pressure is Powell under now? If he is indeed forced to resign, what kind of storm will it trigger?

Trump and Powell: Seven Years of Love-Hate Relationship

The conflict between Trump and Powell ultimately boils down to one thing: one wants to cut interest rates, the other refuses to budge. Based on this core disagreement, the two have been deadlocked since 2018.

Interestingly, Powell's appointment actually came from Trump's nomination. In February 2018, Powell officially took office as the Fed Chair, nominated by Trump. At that time, Trump expected Powell to pursue a loose monetary policy to support economic growth.

In October 2018, Trump publicly criticized Powell for the first time, stating that the Fed's rate hikes were the "biggest threat" and accusing Powell of being "crazy." Their conflict became public, and since then, Trump has continued to pressure Powell, with the war of words ongoing.

In 2022, Powell was re-nominated by Biden for an extended term until May 2026. As the 2024 election year approaches, the situation has escalated. Whether during the campaign or after winning, Trump has consistently criticized Powell for "acting too slowly and being ineffective in cutting rates." Over the past few months, Trump has repeatedly called for Powell's resignation.

However, replacing Powell is not easy for Trump. According to U.S. law, the President has no authority to remove the Fed Chair due to policy disagreements unless there is evidence of "illegal or gross misconduct."

In July of this year, a real breakthrough occurred. The Trump team suddenly presented a "new script": Trump cited "political bias" and "making false statements to Congress" as reasons to request a congressional investigation into Powell, alleging significant irregularities in the renovation project led by Powell at the Fed headquarters.

During this period, there were rumors that Powell was considering "resigning," which quickly escalated the situation. The seven-year power struggle has reached its climax.

Trump and Powell: A Seven-Year Love-Hate Relationship

Former Fed economist Robert Hetschel bluntly stated, "The Fed has been backed into a corner."

Currently, Powell finds himself in the "limbo" of monetary policy: on one side, Trump's tariff policy may lead to upward pressure on prices, while on the other hand, signs of a cooling labor market are emerging. The dual threats have presented a challenge to Powell and the Fed's policy-making.

If the Fed were to cut rates too early, it could lead to consumers losing control of their inflation expectations; if it chooses to raise rates to stabilize inflation, it could lead to bond market turmoil, soaring interest rates, or trigger a "financial panic."

Beyond the economic dilemma, Powell also faces an intense political struggle. However, in response to Trump's pressure, Powell has chosen to confront it. He has requested the Inspector General to continue reviewing the headquarters renovation project and has rarely spoken out through the Fed's official website, providing a detailed response to the reasons for cost increases and refuting the "luxury refurbishment" accusations.

Caught between economic and political pressures, Powell is facing a difficult moment in his career.

What Would Happen If Powell Resigns?

If Powell succumbs to pressure and resigns, the "pricing anchor" of the entire global financial market may loosen.

Deutsche Bank's Global Head of Foreign Exchange Strategy, Saravelos, analyzed that if Trump forcibly replaces Powell, within the next 24 hours, the trade-weighted US dollar index could plummet by 3%-4%, fixed income markets would see a 30-40 basis point sell-off, and the dollar and bonds would bear a "persistent" risk premium. Investors may also worry about the politicization of Fed currency swap agreements with other central banks.

Saravelos further noted, "More worrying is the fragile external financing conditions of the US today, which could lead to more severe and destructive price swings than we forecast."

In addition, a report by Dutch international group's strategy team, including Padhraic Garvey, stated that the likelihood of Powell resigning early is "low," but if it were to occur, it would lead to a steepening of the US bond yield curve as investors anticipate lower rates, accelerated inflation, and a weakened Fed independence. They also pointed out that this would form a "deadly combination" for US dollar depreciation.

Crypto KOL Phyrex's analysis takes a more risk asset perspective. Their analysis suggests that even if Trump successfully replaces Powell, he may not necessarily be able to "rule the roost" over the Fed. Once inflation truly picks up, the new chairman would ultimately have to obediently return to a tightening path. If the Fed were to begin cutting rates in September while the economy remains stable and unemployment is low, risk assets may receive a short-term boost, and the crypto market would benefit. However, with the current rate at 4.5%, there is still "plenty of water to be released" in the future.

When Powell's position wavers ever so slightly, the market trembles. This is not just a monetary policy game but also a power struggle for independence.