Key Facts
• On July 16, reports suggested Trump might dismiss Federal Reserve Chair Powell.
• Markets reacted swiftly, with James Van Geelen issuing a macro trading alert.
• Van Geelen advised buying 2-year U.S. Treasury bonds and selling 10-year bonds.
• Theory: A new Fed chair may lower short-term rates, raising inflation concerns.
• Long-term bond yields could rise due to fears of reduced Fed independence.
• Trump later downplayed the likelihood of Powell’s dismissal, calming markets slightly.
• RBC’s Mark Dowding noted a shift in assumptions about Fed’s political independence.
• Some investors, like Invesco, already positioned for dollar decline and yield curve steepening.
• Powell’s dismissal probability for 2025 rose to 22% on Polymarket, up from 18%.
• Most investors expect Powell to complete his term by May 2026.
• Trump criticized Powell over rising Fed renovation costs and tariff policies.
• Analysts believe Trump cannot legally dismiss Powell without valid cause.
Summary
Wall Street reacted to reports of President Trump potentially dismissing Federal Reserve Chair Jerome Powell, with markets experiencing volatility on July 16. James Van Geelen of Citrini Research issued a macro trading alert, recommending a strategy to hedge against potential policy shifts under a new Fed chair. The strategy involved buying 2-year U.S. Treasury bonds and selling 10-year bonds, anticipating lower short-term rates and higher long-term yields. While Trump later downplayed the likelihood of Powell’s removal, concerns about the Fed’s independence and inflation risks persisted. Investors like Invesco and Allspring had already positioned for a weaker dollar and a steeper yield curve. Despite speculation, most analysts believe Powell will complete his term, with Polymarket estimating a 22% chance of his early departure by 2025. Trump’s criticism of Powell, including over Fed renovation costs, has intensified, but legal barriers make dismissal unlikely. The situation underscores growing tensions between the White House and the Federal Reserve, with potential implications for U.S. monetary policy and market stability.
