In a new research memo outlining potential scenarios if President Donald Trump were to fire Federal Reserve Chair Jerome Powell, analysts warned that regardless of how events unfold, “it would be chaotic.”
Tobias Marcus and Chutong Zhu of Wolfe Research wrote in a client note: “We expect, as most do, that the outcome would be sharply negative for markets, including broad-based selling in equities and an unwarranted rise in long-term yields.”
Wolfe Research predicted that the Supreme Court might ultimately have to decide whether Trump has the authority to remove Powell “for cause.”
The analysis came just hours after reports shook the perceived stability of Powell’s leadership at the central bank—reports that were quickly walked back.
CNBC had reported Wednesday morning, citing a senior White House official, that Trump had told a group of Republican lawmakers on Tuesday evening of his intention to “fire Powell soon.”
But during a press Q&A in the Oval Office, Trump swiftly denied his own official’s comments.
“We are not planning to do that,” Trump said, adding: “I never rule anything out… but I think it’s highly unlikely unless [Powell] is involved in fraud.”
Still, Trump is known for unpredictability and has a long history of firing officials shortly after publicly expressing support for them.
In Powell’s case, Trump has criticized him for months, accusing him of refusing to lower interest rates in line with White House demands.
Analysts call the idea ‘disastrous’
Roger Altman, founder of Evercore and former Deputy Treasury Secretary under President Bill Clinton, told CNBC’s Closing Bell: “There are a lot of bad ideas, but firing the Fed Chair—or trying to, because it’s unclear if it would succeed—is among the worst.”
Altman called the idea “horrifying,” highlighting the clear difference in economic performance between countries with truly independent central banks, like the United States, and those where monetary policy is government-controlled, such as Turkey and Argentina, which have seen double-digit inflation in recent years.
“I don’t believe Powell would resign if asked to,” Altman added, suggesting the matter would “end up in the courts.”
Potential chaos scenarios
Wolfe Research analysts agreed with Altman’s view, writing: “If Trump actually proceeds with firing Powell instead of just pressuring him to resign, Powell would likely sue to block the move.”
They asked: “The first question is, would Powell still be considered fired during the legal process?”
They noted that Trump had previously fired commissioners at independent agencies during his second term, and while some filed lawsuits to reclaim their positions, those efforts “failed.”
The memo added: “The exception with Powell is that he heads the agency he leads—unlike prior dismissals of commissioners who were not chairpersons, after Trump had already appointed a new chair.”
“In those cases, the new agency head could enforce dismissals. But at the Fed, there is no one with the authority to remove Powell.”
Wolfe Research outlined three possible scenarios if Trump goes through with the firing:
– Powell continues to function as Fed Chair while Trump seeks a court order to remove him.
– Powell voluntarily resigns and sues the government seeking reinstatement.
– Powell refuses to leave while Trump attempts to remove him via executive order.
The memo warned that the third scenario would be the most dramatic, referencing a recent incident in March when police were called to remove staffers from the US Institute of Peace after Elon Musk’s “Department of Government Efficiency” accused them of trespassing.
“It goes without saying,” the note read, “that the image of Powell being escorted out of the Fed by police would be profoundly unsettling for markets.”
Will the Supreme Court intervene?
If the matter escalates to a legal case, it is likely to reach the Supreme Court.
Analysts noted that the Court recently signaled in an unrelated case that it views the Fed as distinct from other independent agencies in terms of the protections afforded to its leadership.
The majority opinion stated: “The Federal Reserve is a unique, quasi-private entity that falls within a historically distinct tradition beginning with the First and Second Banks of the United States.”
Wolfe Research wrote: “We believe Powell has a good chance of winning in court, but it’s not guaranteed.”
They added that the core issue isn’t just whether the Court will uphold the ‘for cause’ removal protection for the Fed Chair, but also whether it will restrict the President’s authority to define what constitutes ‘cause.’
They raised another potential scenario: that a lower court might issue an injunction preventing Trump from carrying out the dismissal, and that such an order could remain in effect while the case proceeds.
The memo concluded that this would be enough to allow Powell to complete his term as Fed Chair.
