President Donald Trump versus Federal Reserve Chairman Jerome Powell. The world’s most powerful man squaring off against its most influential central banker. A showdown for the ages to determine the future of the financial markets, let alone the global economy.
Meanwhile, sitting ringside, wealth managers are doing their best to handicap the outcome and protect client portfolios from being bloodied.
The calendar may say its earnings season, but financial advisors say the action on Wall Street has been driven more by the latest news from Washington than the latest quarterly corporate report. Whether it be scuttlebutt on a China trade deal from Secretary of the Treasury Scott Bessent, or an off-the-cuff remark from President Trump himself on Air Force One, the market’s biggest moves – seriously, check the VIX and the volume – can be directly sourced to the nation’s capital, not lower Manhattan.
And as evidenced by this week’s market action, the brewing battle between Trump and Powell could be creating collateral damage beyond the Beltway for months to come.
Global investors sold off US stocks, Treasury bonds and even the US dollar on Monday apparently in response to the President’s social media attack on Powell.
On his Truth Social account, the President posted that ″‘Preemptive Cuts’ in Interest Rates are being called for by many,” adding that there is “virtually No Inflation” in America, and that costs for energy and “most other ‘things’” are declining.
“With these costs trending so nicely downward, just what I predicted they would do, there can almost be no inflation, but there can be a SLOWING of the economy unless Mr. Too Late, a major loser, lowers interest rates, NOW,” Trump wrote.
Powell thus far has refused to flinch in the face of Trump’s jabs, or even recent reports that the President is researching ways to remove him from his position.
The question then arises, what happens to the market if Trump successfully did knockout Powell?
Dory Wiley, CEO of Commerce Street Holdings, believes the market does not like a President meddling with the independence of the Fed. In his view, it will overreact to Powell’s removal.
“Trump shouldn’t act here given there are 6 other governors and Michelle Bowman is the likely independent minded replacement. I do not suggest portfolio changes based on this issue. While it bears watching because it creates uncertainty and volatility, it’s not worth overreacting to,” Wiley said.
Elsewhere, Sean Beznicki, director of investments at VLP Financial Advisors, said the feud appears to be “more bluster from an administration that sees itself as having unilateral decision-making power.” Given the administration’s pattern of threatening first and retreating later, he expects this to add more volatility. At most, this could bring rates down sooner than expected, which would be a tailwind for the markets, according to Beznicki.
“The FOMC may cut rates in late 2025, having been infamously slow to raise them when Powell called inflation ‘transitory’ in 2021. Lower rates could spur demand across mortgages, auto, and business loans, heating up the economy—but the timing depends on monetary policy’s lag effects,” Beznicki said.
Still, Beznicki is confident that Powell and the Fed will remain independent and resist Trump’s pressure, pointing to Treasury Secretary Scott Bessent’s warning as evidence that compromising the Fed could rattle global markets.
Elsewhere, Christian Salomone, chief investment officer at Ballast Rock Private Wealth, said he has been watching President Trump's attacks on Federal Reserve Chair Jerome Powell very closely “because an independent Federal Reserve is essential for a healthy US economy.” It is paramount for the markets and investor confidence that monetary policy is seen as based on hard economic data rather than political pressures, according to Salomone.
“As witnessed by recent market volatility, investors abhor uncertainty, whether it stems from trade policy, tariffs, or, particularly, politically motivated monetary decisions aimed at undermining our independent central bank,” Salomone said.
Even before the recent market swings, Salomone has favored gaining broad equity market exposure through buffered ETFs, which provide protection against market sell-offs in exchange for some potential upside sacrifice during rallies. Given the current heightened volatility, he believes these buffered ETFs have become even more appealing for their ability to mitigate daily market fluctuations.
Additionally, as concerns over a potential US recession grow and a weakening U.S. dollar, he has increased his exposure to global equities. And on the fixed income side, Salomone has shortened the duration of his bond holdings to reduce sensitivity to the significant interest rate movements we've seen in the long end of the US Treasury curve.
Moving on, Ryan Johnson, financial planner at Hundred Financial Planning, admits he has been watching the headlines, and recognizes the possibility of the Trump/Powell battle impacting to his client portfolios in the short term. Nevertheless, he refuses to guess its long-term impact.
“We believe that businesses will continue to find ways to deliver value to consumers and we want to take part in that growth, even if there are some unpredictable bumps along the way. It’s just the price you pay for being a long-term investor,” Johnson said.
Finally, Michael Rosen, chief investment officer at Angeles Investments, agrees that the President’s comments about replacing the Fed chair will continue to cause undue volatility in the markets, but he doubts the firing will happen.
“The chair’s term ends in 10 months and it is likely to be more advantageous for the president politically to call for lower interest rates than necessarily to see the Fed lower interest rates, as the president sets himself for a political win either way. That is, if the economy rebounds without interest rate cuts, the president will take credit for the recovery,” Rosen said.
Finished Rosen: “If the economy contracts, the president will claim the Fed should have listened to him all along and cut rates. So the political calculus favors the president pestering the Fed to lower rates but not actually fire the chair.”
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