Trump's Ouster Of Fed Chair Powell Could Trigger 'Collapse' Of Currency And Bond Market, Deutsche Bank Warns

Deutsche Bank has issued a warning about the potential consequences of President Donald Trump replacing Jerome Powell as the head of the U.S. Federal Reserve.

What Happened: A research note titled “What if?” was published by the bank’s global head of FX research, George Saravelos, over the weekend. The note explores the potential market impact if Trump successfully ousts Powell and appoints someone who shares his views on lower interest rates, reported Fortune.

Saravelos’s note suggests that the market reaction to Powell’s removal could be significant, potentially leading to a collapse in both the currency and bond markets. The note also highlights the possibility of a rise in inflation expectations, a drop in real yields, and an increase in broader risk premia due to institutional erosion.

Saravelos expects the earliest warning sign to be a sharp decline in the U.S. dollar, which has already fallen 9.75% this year. He forecasts an additional 3%–4% drop in the dollar’s value and a 30–40 basis point sell-off in U.S. fixed income markets within 24 hours of any announcement regarding Powell's removal.

"We believe the market reaction would be large," the note mentioned. It added, “In extreme cases, both the currency and the bond market can collapse as inflation expectations move higher, real yields drop and broader risk premia increase on the back of institutional erosion."

While many investors don’t see Powell’s replacement as a likely scenario, they also don’t consider it impossible. Bettors on Polymarket, a crypto predictions exchange, currently estimate a 19% chance of Powell’s removal before his term ends in May.

Trump's public criticism of Powell has been clear in his social media posts and, more recently, in a letter from Russ Vought, the former Office of Management and Budget director, demanding explanations from Powell regarding the renovation of the Federal Reserve's headquarters.

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Why It Matters: The Federal Reserve has been under scrutiny from the Trump administration over a controversial renovation project at its Washington headquarters, which has exceeded its original $2.5 billion estimate.

In response, Powell ordered a review of the project amid growing political backlash and accusations of mismanagement, secrecy, and lack of oversight, according to a detailed FAQ published by the central bank.

Real estate investor and entrepreneur Grant Cardone accused Powell of setting the middle class back a decade and freezing the housing market in a social media post. He blamed Powell’s past comments about raising rates to fight inflation, even if it caused economic pain.

Earlier this month, Powell had indicated that the central bank would have implemented a more lenient monetary policy if not for President Trump’s tariff strategy during a panel discussion.

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• Bill Ackman Cheers Money Market Funds Hitting Record $7.4 Trillion As Jerome Powell Snubs Trump’s Rate Cut Demands

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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.