Gold prices edge lower; heading for weekly losses ahead of U.S.-Russia talks
Investing.com -- Speculation about President Donald Trump potentially removing Federal Reserve Chair Jerome Powell could significantly impact the U.S. dollar, according to market strategists.
Sean Callow, market strategist at InTouch Capital Markets, warned in a note that such a move would likely be "very damaging" for the USD. He projected the US Dollar Index could fall more than 5% over time if Powell were removed.
Callow explained that firing Powell might drive down short-term yields as markets anticipate a more dovish central bank head. Additionally, it could add risk and inflation premiums to longer-dated U.S. debt.
The speculation intensified Wednesday when a senior White House official told CNBC that Trump had informed Republican lawmakers the night before that he would likely fire Powell "soon."
However, Trump quickly contradicted this report during an Oval Office session with reporters, stating: "We’re not planning on doing it." While not completely ruling out the possibility, the president added, "I think it’s highly unlikely, unless he has to leave for fraud."
Wolfe Research analysts Tobin Marcus and Chutong Zhu addressed the potential fallout in a research note, describing any Powell firing scenario as "a mess." They predicted "significantly negative" market reactions, including an equity selloff and a "counterproductive spike in long-term yields."
The research firm also suggested that the Supreme Court might ultimately need to determine whether the president has the authority to fire the Fed chair for cause.