On Volatility and Trump’s Tiff With Powell

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President Donald Trump stole headlines again last week. First, he insisted Fed Chair Jerome Powell’s “termination cannot come fast enough”—with many suggesting he sought a legal justification for firing him—before Trump denied he had any intention of doing so Tuesday.^[i] Many pin equity, bond and dollar volatility on this, suggesting even the mention of violating the Fed’s independence from politics risked the dollar and Treasurys’ appeal. But slow down. Let us step back, zoom out and put all these conflicting and strong narratives into proper perspective. Doing so should help reveal this looks mostly like the kind of fear morph that typifies correction sentiment.

Many argue continued equity market volatility resulted from President Trump’s calls to fire Powell but saw more to sweat in bond and dollar choppiness. From April 2’s “Liberation Day” to April 18, the dollar fell -2.6% versus a broad, trade-weighted currency basket—or -4.1% versus a narrower one of “major” trading partners that omits Emerging Markets.^[ii] Long-term bond yields continued a rise that has drawn many eyeballs lately.

Pundits connected these moves, which extended into Monday before reversing, to President Trump’s recent social media posts suggesting he would dismiss Powell if the Fed doesn’t lower rates soon. Their main fear? Trump could sack Powell and replace him with a puppet who cuts rates to curry the president’s favor, spiking inflation and sending market-set long yields soaring.

He eventually pulled back Tuesday afternoon, but many see Trump’s shots at Powell as impinging on the Fed’s storied “independence” from partisan politics. While the president appoints the Fed head and several other officials, America’s central bank operates outside explicit presidential control—as an independent body. And to many folks, this independence is vital to supporting monetary policy decisions based on evidence and analysis, not politics. Coolheaded technocratic thinking, no messy popularity-seeking. Under the Federal Reserve Act, Presidents can fire Fed chairs only “for cause,” like a scandal or malfeasance, not a difference of opinion on policy. This is a pretty ironclad provision—no Fed chair has been fired before, even though presidents have often quibbled with monetary policy.

Yet some think a current, if unrelated, court case could challenge this. Trump is currently being sued by three independent agency heads he dismissed in February, which the plaintiffs claim is beyond his authority. His administration intends to challenge the “for cause” protections these plaintiffs claim under Humphrey’s Executor v US, the 1935 precedent.^[iii] Some speculate SCOTUS ruling in the administration’s favor could upend that precedent, opening the door to Trump’s ousting Powell.

We doubt this happens. For one, Section 10 of the Federal Reserve Act roughly outlines the Fed’s independence and explicitly states members may be removed only “for cause” by the President.^[iv] The two words are in there! Not much to interpret, in our view.

Secondly, Fed independence has broad, bipartisan Congressional backing, likely making this a big policy question for Trump. His impeding on it could lose him valuable support in an already narrow majority—key in passing his tax agenda. So, all things considered, this narrative looks like it was always a stretch, even before Trump’s late-Tuesday reversal.

Another reason the narrative of people abandoning dollar assets on these fears looks like a stretch? The widely touted volatility isn’t very volatile when you zoom out even just a bit. Exhibit 1 shows the US dollar versus the broad and “major” trade-weighted currency baskets since 1999. Exhibit 2 shows long-term Treasury yields over the same stretch.

Exhibit 1: US Dollar Hasn’t Tanked…

Source: FactSet, as of 4/23/2025. Change in nominal trade-weighted US dollar index (broad and major), daily, 12/31/1999 – 4/22/2025.

Exhibit 2: …and Treasury Yields Haven’t Skyrocketed

Source: FactSet, as of 4/23/2025. 30-Year and 10-Year Treasury yield, constant maturity, daily, 12/31/1999 – 4/22/2025.

The dollar’s weakening is small and short term. It remains well above levels seen over the past two decades and at levels seen throughout 2024, when many groused about a supposedly too-strong dollar. Treasury yields’ rise has been mild, too, which we covered recently. If investors, domestic or foreign, thought Trump was about to violate the Fed’s independence and put policy on partisan string, we would expect much bigger moves. They aren’t there.

Beyond this, consider: Trump will nominate a new Fed chair next spring perfectly legally. Powell’s term ends May 15, 2026—Trump could reappoint him, but he could also appoint a new candidate, like former Fed Governor Kevin Warsh (long rumored to be Trump’s fave). Presidents appoint Fed chairs a year after inauguration, a schedule complicating the notion of pure Fed independence. Note, though, Trump’s appointment must be Senate-confirmed, and controversial picks may struggle to get through a narrowly divided Senate. Exhibit A: Trump’s 2019 Fed board appointment of Judy Shelton, which failed to win Senate approval. That Senate was 53 – 47 GOP … like today’s.^[v]

Regardless, nothing says Powell’s eventual replacement, whether that is next year or no, will be worse. He isn’t exactly infallible. As a refresher, Powell revised the Fed’s 2% inflation target to an undefinable “average,” fostering confusion galore. His FOMC also massively, inexplicably spiked money supply amid a locked down economy in 2020, fueling the inflation that followed. In our view, the “soft landing” he is credited for engineering had little to do with his actions. Whomever Trump appoints will just be a new voter of the FOMC’s 12—including regional Fed bank presidents Trump can’t touch. Not exactly a monumental shift, considering the FOMC has been pretty unanimous lately.

It is also entirely possible this back-and-forth is just posturing. Trump might just seek a scapegoat to blame if the economy doesn’t go his way. But above all, this seems like the kind of exaggerated narrative that dominates airwaves during a correction. Not a realistic underlying threat.