Summer's "Black Swan": After May, Trump has the right to "fire" Powell and make the Federal Reserve submit?

Rumors have emerged from the White House about a "leadership change" at the Federal Reserve, and a Supreme Court ruling may further shake Jerome Powell's position. Is the global financial market brewing the next storm?

On Monday local time, U.S. Treasury Secretary Scott Bessent stated in an interview that he and President Trump have "been considering" candidates for the next Federal Reserve Chair and plan to start interviewing potential candidates in the fall.

Public information shows that current Federal Reserve Chair Jerome Powell's term will end in May 2026, and Bessent's remarks have ignited speculation in the market about changes in the Federal Reserve's leadership.

At the same time, the Trump administration is targeting independent agencies, urging the Supreme Court to dismiss relevant officials. Analysts believe this move could pave a legal path for Trump to remove Powell, challenging the long-standing independence norms of the Federal Reserve.

In May, focus on the Supreme Court's ruling

According to media reports, the Trump administration has urgently requested the U.S. Supreme Court to authorize the president to dismiss senior officials from two independent federal agencies (Gwynne Wilcox from the National Labor Relations Board and Cathy Harris from the Merit Systems Protection Board).

This move aims to challenge the precedent established by the 1935 case "Humphrey’s Executor v. United States," which limited the president's power to dismiss heads of independent agencies at will, ensuring the operational autonomy of independent agencies within the government.

Based on compiled media information, the Trump administration believes these restrictions violate the executive powers granted to the president by Article II of the Constitution, arguing that agencies exercising significant executive power must be under the president's complete supervision.

Trump has requested the Supreme Court to allow him to immediately dismiss these two officials, without waiting for a final ruling from the appellate court, and to conduct a comprehensive review immediately—Trump's administration stated that the Supreme Court should hold a special session in May to hear this case within the current judicial year (which typically runs from October each year to June or July of the following year).

Some analysts pointed out that the final ruling in this case is a test of "whether Trump has the authority to dismiss Federal Reserve Chair Powell"—although the current Federal Reserve Act stipulates that the dismissal of the Federal Reserve Chair requires "just cause," if the Supreme Court overturns the precedent set by "Humphrey’s Executor," it would undoubtedly significantly weaken this protective barrier, opening the door for presidential intervention in the operations of the Federal Reserve.

Powell's "slow response" frustrates Trump

In fact, Trump has long been dissatisfied with Powell's monetary policy (especially interest rate decisions).

Under Powell's leadership, U.S. inflation is entering a cooling track, but his anti-inflation efforts are now facing new threats from Trump's trade war. The market is focused on whether Powell will choose to maintain a hawkish stance to ensure inflation does not return or yield to market pressures and begin the rate-cutting cycle early.

In this regard, the White House has been continuously pressuring Powell. Media reports indicate that Trump has been critical of the interest rate policies of the Federal Reserve under Powell's leadership, repeatedly pressuring for significant rate cuts. He has publicly urged Powell to cut rates on social media:

"He is always 'half a beat slow', but now he has the opportunity to turn his image around, and he needs to act quickly."

Despite the recent tariff shocks, the Federal Reserve has withstood pressure to maintain interest rates unchanged. Powell also countered earlier this month, stating that the tariff levels exceeded expectations and could trigger 'persistent' inflation beyond short-term price shocks.

Potential Leverage? Dollar Swap Lines May Affect US-EU Negotiations

The impact of the Federal Reserve's independence being shaken goes far beyond the outlook for monetary policy paths.

Some analysts point out that this potential power shift could even affect international relations, especially in trade negotiations with Europe.

This view suggests that if Trump ultimately gains the power to dismiss the Federal Reserve Chairman and appoint a "loyalist" who is faithful to him to lead the Federal Reserve, then European policymakers will have to start worrying: the dollar swap lines, as a key negotiating chip, may be revoked or used as a pressure tool.

The Fed-centered currency swap network has gradually become an important tool for the US to defend the international status of the dollar during times of crisis. It serves as a crucial liquidity safety net for the global financial system.

The Federal Reserve officially defines currency swaps as: to address severe pressures in the global short-term dollar financing market, the Federal Reserve can establish temporary central bank liquidity swap lines (also known as currency swaps) with foreign central banks, which can use the swap lines to provide dollar liquidity to financial institutions within their jurisdictions.

If Trump gains the power to dismiss the Federal Reserve Chairman, the government could exert influence over the operation of the swap mechanism through personnel appointments and "moral persuasion." If this tool is selectively used for geopolitical games, the foundation of the global financial system will be shaken.

Take Europe as an example. Relevant data shows that the dollar gap in the Eurozone banking system has long existed. If support from swap lines is lost, European financial institutions may face liquidity breakdowns, triggering a chain reaction similar to Lehman Brothers; if the Federal Reserve uses the revocation of swap lines as leverage, weaponizing this mechanism, Europe may be forced to make concessions in areas such as trade and energy policy, potentially affecting US-EU tariff negotiations.

A Dollar "Nuclear Weapon" More Powerful than Tariffs

Wall Street Insight previously mentioned that Deutsche Bank analysis believes the Federal Reserve's dollar swap mechanism is a "nuclear weapon" that is more deterrent than tariffs.

Deutsche Bank stated that the Federal Reserve's dollar swap lines control a foreign exchange swap market worth approximately $97 trillion, equivalent to the total global GDP, and serve as a lifeline for non-US institutions to obtain dollar liquidity during crises.

If Trump sets his sights on the Federal Reserve's dollar swap "nuclear button"—the US refusing to provide dollar liquidity at critical moments would trigger a severe global financial crisis.