Deutsche Bank Strategist Warns: Risks of Powell’s Ouster Are Undervalued – Here’s What You Need to Know!

President Trump’s recent comments about Federal Reserve Chair Jerome Powell have raised alarms among financial experts. Trump suggested that Powell should “resign immediately” if allegations about misleading Congress regarding Fed renovations are proven true. This comes amid ongoing criticism of Powell, as Trump demands lower interest rates and hints at finding a new nominee before Powell’s term ends.

Powell, however, remains firm. He rejects pressure to change monetary policy and emphasizes the Federal Reserve’s independence. While he has acknowledged budget overruns in the renovation project, he disputes claims that have been labeled as misleading.

George Saravelos, a strategist at Deutsche Bank, believes that the markets are underestimating the potential impact of Powell’s removal. He notes that a betting platform, Polymarket, places the odds of Trump’s actions at less than 20%. Despite this low likelihood, Saravelos warns that if Trump did remove Powell, the dollar could drop by 3-4%, and Treasury bonds could face a significant selloff.

Such actions could lead investors to view this as a threat to the Fed’s independence, resulting in a long-lasting risk for the dollar and bonds. According to Saravelos, “the Fed’s position is critical,” and any instability would have repercussions worldwide.

How the markets respond in the days following any drastic changes would depend on whether other Fed officials publicly support the central bank’s independence, along with Trump’s decision on Powell’s successor. The current state of the economy also plays a crucial role in determining market reactions.

Experts from ING Groep NV, including strategist Padhraic Garvey, believe that while Powell is unlikely to exit early, if he did, it could significantly affect the Treasury yield curve. Investors might anticipate lower rates and faster inflation, creating a challenging scenario for the dollar, especially against currencies like the euro and yen.

This situation highlights the ongoing tension between political pressures and financial stability. For now, investors will closely monitor developments and their potential impact on the broader economy.

For more insights on the Federal Reserve and monetary policy, you can refer to Bloomberg.

Source link

Donald Trump,Federal Reserve,jerome powell