If Trump wants to lower interest rates, firing Powell is far from enough; he may need to replace the entire Federal Reserve Board!

Wall Street economists generally believe that even if Trump could fire Powell, it would not be enough to force the Federal Reserve to cut interest rates according to his wishes.

On Tuesday Eastern Time, media reports indicated that several economists stated that firing Powell would only be the first step, and complete control over monetary policy would require more extreme measures. Paul Ashworth, Chief North America Economist at Capital Economics, pointed out in a recent report:

Firing Powell is likely just the first step in undermining the independence of the Federal Reserve. If Trump is determined to lower interest rates, he would have to fire all seven members of the Federal Reserve Board, which would trigger a more severe market backlash, the dollar would fall, and long-term rates on the yield curve would rise.

It is worth noting that Powell serves as both the Chair of the Federal Reserve Board and the Chair of the Federal Open Market Committee (FOMC), the latter of which is responsible for setting interest rate policy.

According to reports, while FOMC members typically choose the Board Chair appointed by the president as their leader, they can ignore Trump's wishes and select someone else to chair the committee that sets interest rates. Michael Feroli, Chief U.S. Economist at JP Morgan, stated in a report on Monday:

Much of the power of leadership comes from historical respect rather than actual working mechanisms.

Legal Controversy and Market Risks Coexist

Reports indicate that it is currently unclear whether Trump has the authority to dismiss Powell before his term as Board Chair ends next year. The Supreme Court is set to hear appeals regarding Trump's dismissal of other federal agency board members, a case that may provide clues about the future of the Federal Reserve.

Even if Trump appoints new leaders, Federal Reserve members may collectively resist political pressure. Peter Sidorov, Senior Economist at Deutsche Bank, pointed out in a report to clients on Tuesday:

It is worth noting that while the Federal Reserve Chair has significant influence over the FOMC, monetary policy actions are decided by majority vote, so firing Powell could lead to increased resistance from other members against easing policies.

Wall Street professionals are concerned that changes at the Federal Reserve could lead to further sell-offs and inflation panic. JP Morgan noted:

Any action that reduces the independence of the Federal Reserve would increase the upside risks to the inflation outlook, which is already under upward pressure from tariffs and higher inflation expectations. There was hope that these adverse consequences would deter Trump from threatening the independence of the Federal Reserve, but so far, Trump has frequently pursued his intentions.

For investors, the outcome of this power struggle will directly affect asset pricing and investment strategies, particularly in terms of inflation expectations, dollar movements, and bond yields, requiring heightened vigilance