Bank of America pointed out trade setups investors can do if US President Donald Trump fires US Federal Reserve Chair Jerome Powell.
The long-simmering tensions between Trump and Powell reached a new level this week, with reports suggesting Trump had moved closer to attempting Powell’s removal.
Although Trump later denied that Powell’s dismissal was imminent, his public criticism of the Fed chief has intensified, prompting concern across global markets and among investors.
Reports of dismissal plans spark market anxiety
According to a report from The New York Times, Trump went as far as drafting a letter to fire Powell, a move that would likely spark a constitutional and market crisis given the Federal Reserve’s independence.
CNBC also reported that a White House official had confirmed Trump was considering Powell’s removal.
While Trump publicly denied an immediate dismissal, he did not rule it out entirely.
In a post on Truth Social on Friday, Trump reiterated his frustrations with Powell, stating, “lower the Rate, Too Late,” as he continued to pressure the Fed for lower interest rates.
The criticism mirrors previous historical tensions between presidents and Fed chairs — notably, George H.W. Bush blamed Alan Greenspan’s cautious rate cuts for contributing to his failed reelection bid.
Still, no modern US president has been as direct or persistent in urging monetary easing as Trump.
Strategic motives behind rate pressure
Bank of America strategist Michael Hartnett outlined potential reasons behind Trump’s aggressive posture on rate cuts.
In his latest “Flow Show” report, Hartnett noted that federal spending dynamics may be a key factor.
“US government spend = $7tn and Trump can’t cut $4tn mandatory spending, has backed off cutting $1tn of discretionary spend (no DOGE) and $1tn of defense spend,” he wrote.
Hartnett emphasized that if Powell were removed and rate cuts followed despite no recession, it would likely lead to significant market implications.
How investors can position themselves
Hartnett outlined a series of potential investment plays in the event of Powell’s dismissal and subsequent rate cuts.
Among his recommendations: shorting the US dollar due to the potential for currency debasement, going long on gold and cryptocurrencies as hedges against policy uncertainty, and shorting long-term Treasury bonds if the Fed cuts rates during an economic boom rather than a bust.
He also suggested a “barbell” strategy in equities, combining US tech stocks with value plays in developed and emerging markets (EAFE/EM).
These positions could offer hedges against speculative bubbles or policy-driven market distortions.
Despite the political noise, the equity markets have remained resilient. The S&P 500 closed at a record high on Thursday and is on track for a weekly gain.
Investors also continued to pour money into equities, with Bank of America clients allocating $4.8 billion to stocks this week, according to Hartnett.
As the drama between Trump and Powell unfolds, market participants are watching closely.
A forced change in Federal Reserve leadership would be an unprecedented event with far-reaching consequences, both economic and political.
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