United States (US) President Donald Trump’s ire towards US Federal Reserve (Fed) Chair Jerome Powell has once again taken centre stage. The dispute, which has been simmering for many years, was reignited by Powell’s testimony before Congress this week. Now that President Trump is openly discussing replacing Powell, the issue has taken on heightened significance and the markets are bracing themselves for potential shifts in US monetary and interest rate policy, as well as questioning the independence of the most important central bank in the world.
Origins and escalation of the feud
Trump appointed Powell as Fed chair during his first term in 2017, but their relationship quickly soured over disagreements on interest rate policy. Trump has consistently pushed for aggressive rate cuts to stimulate economic growth and reduce the federal government’s borrowing costs, especially as the US faces a mounting $36 trillion debt burden. Powell, meanwhile, has maintained a cautious stance, prioritising the Fed’s dual mandate of maximum employment and stable prices over Trump’s political pressure.
This week, the feud flared anew. During testimony before Congress, Powell reiterated the Fed’s “wait-and-see” approach, emphasising that the central bank would not rush to cut rates until it could assess the full inflationary impact of Trump’s new tariffs. Powell warned that tariffs are likely to push up prices this summer, and that the Fed must remain vigilant to avoid reigniting inflation, even as recent data has shown some moderation. “If inflationary pressures remain controlled, we could reach a point of cutting rates sooner rather than later… I don’t think there’s any urgency,” Powell told lawmakers.
Trump responded with characteristic bluntness, labelling Powell “an average mentally person” and “very stupid,” while blaming him for keeping rates too high and costing the government “hundreds of billions of dollars in interest”. At a press conference following the NATO summit, Trump declared that Powell’s term would be up “pretty soon fortunately, because I think he’s terrible,” and confirmed that he is actively considering three or four candidates to replace him.
Trump’s plans for a new Fed chair
Trump’s rhetoric is not merely bluster. Reports indicate he is seriously considering announcing Powell’s successor as early as September or October, well before Powell’s term ends in May 2026. The shortlist reportedly includes former Fed Governor Kevin Warsh, National Economic Council director Kevin Hassett, current Fed Governor Christopher Waller, and Treasury Secretary Scott Bessent.
By floating these names and timelines, Trump is signalling to markets and policymakers that a more dovish (wanting to stimulate the economy), pro-growth Fed chair could soon take the helm. Some analysts believe this strategy is intended to influence Fed policy even before the formal transition, creating a “shadow” chair whose anticipated views may shape market expectations and the behaviour of current Fed officials.
However, legal and institutional constraints remain. A recent US Supreme Court ruling affirmed the Fed chair’s protection from removal over policy disagreements, limiting Trump’s ability to oust Powell before his term expires. Still, the mere prospect of an early announcement has already started to affect market sentiment.
IMPLICATIONS FOR INTEREST RATES AND MARKET SENTIMENT
The Trump–Powell feud and the prospect of a new, dovish Fed chair have immediate and far-reaching implications for monetary policy and financial markets.
Central bank independence
Perhaps most significantly, Trump’s public attacks and threats to replace Powell have raised alarms about the independence of the Federal Reserve. The central bank’s credibility rests on its ability to make decisions free from short-term political pressures. Analysts warn that undermining this independence could erode investor confidence, destabilise markets, and ultimately make it harder to achieve stable growth and lower inflation.
Market sentiment
The renewed feud and the spectre of a politicised Fed have rattled investors. The dollar has weakened sharply, reaching multi-year lows against major currencies as traders anticipate easier monetary policy and greater political interference in the central bank’s decisions. US Treasury yields have also fallen, reflecting expectations of lower rates and heightened uncertainty. Equity markets, which initially welcomed the prospect of rate cuts, have become more volatile amid concerns about the Fed’s independence and the risk of inflation if tariffs persist.
Interest rates
Powell’s testimony made clear that the Fed is not in a hurry to cut rates, citing uncertainty over the inflationary impact of tariffs and the need for more data, especially given that we are still in the 90 day pause period on the 2 April tariffs, and no one can be sure what the tariffs will ultimately be or the impact they will have. In contrast, Trump and some of his potential Fed chair picks have advocated for rapid and significant rate cuts; potentially lowering the federal funds rate from its current 4.25% to 4.5% range to as low as 2.25%. If Trump succeeds in appointing a more dovish chair, markets expect rate cuts to come sooner and possibly go deeper than currently priced in.
The feud between Trump and Powell is more than a personal spat; it is a struggle over the direction and independence of US monetary policy at a critical juncture. As Trump moves closer to announcing a new Fed chair, markets are bracing for a period of heightened uncertainty. The outcome will shape not only the path of interest rates but also the credibility of the world’s most important central bank and the stability of global financial markets.
MARKET MOVES
Bonds
The US 10-year Treasury yield fell to 4.26%, its lowest level since early May, driven by heightened expectations of Fed rate cuts. Speculation intensified after reports that President Trump might announce a new Fed Chair as early as September, potentially shifting the Fed toward more dovish leadership. Fed Chair Powell’s testimony suggested that rate cuts would have continued if it wasn’t for the tariff-induced inflation risks. Markets now anticipate 64 basis points of cuts in 2025, up from 46 basis points earlier in the week.
German 10-year Bund yields rose to 2.543% following Germany’s approval of a record 2025 budget and 2026 fiscal framework. The expansionary plan, featuring accelerated spending and a €19 billion increase in third-quarter debt issuance, raised concerns about bond supply. Additionally, the North Atlantic Treaty Organisation’s (NATO’s) decision to raise defence spending targets to 5% of GDP by 2035 fuelled expectations of further borrowing, particularly by Germany.
United Kingdom (UK) 10-year Gilt yields dipped below 4.53% as BoE officials signalled a downward rate path. BoE Governor Andrew Bailey cited labour market slack and slower wage growth, while Deputy Governor Dave Ramsden warned that inflation could fall below the 2% target amid rising unemployment.
Indices
The S&P 500 neared record highs, recovering from an 18.9% plunge in April, fuelled by tariff uncertainties. The rebound was driven by easing Middle East tensions, strong tech earnings, and optimism over Fed rate cuts. White House signals of tariff flexibility and artificial intelligence enthusiasm further supported gains, with the index jumping 0.8% to hit a record high.
Germany’s DAX futures fell 3.05% amid fiscal expansion concerns and weak Purchasing Managers Index (PMI) data. The EURO STOXX 50 dropped 0.15% to 5,244.03, down 5.35% from its March peak. Export-heavy sectors struggled with lower Chinese demand, while defence stocks like BAE Systems jumped on NATO’s defence spending hike.
The UK’s FTSE 100 saw muted movement in its June review, though commodity-linked stocks rallied. Miners Anglo American and Antofagasta jumped 6.9% and 6%, respectively, on rising metal prices. Defence firm BAE Systems gained over 3.7% on NATO spending targets, offsetting losses in exporters hurt by the sterling’s strength.
Commodities
The gold price has moderated to $3,383.80/ounce, reaching a four-week low, as the Israel-Iran ceasefire appears to be holding and has reduced safe-haven demand. However, lingering trade tensions and Fed rate-cut expectations are still providing some support. Prices are facing pressure from a stronger dollar and fading Middle East risks, but tariff uncertainties and softer US GDP data have limited losses.
West Texas Intermediary crude rebounded to above $65.08/barrel on unexpected US crude inventory draws and strong demand signals. Geopolitical risks persisted, with Iran threatening the Strait of Hormuz (handling 20% of global liquified natural gas trade), while supply decisions from the expanded Organisation of the Petroleum Exporting Countries, OPEC+, and Canadian oil sands production have added volatility. Goldman Sachs warned Brent could surge to $110/barrel if Middle East disruptions escalate.
Currencies
The US Dollar Index weakened 9.27% year-to-date, falling to 97.27 – its lowest level since February 2022. Tariff-induced inflation risks, recession fears, and Fed rate-cut bets drove the decline. Markets priced in a 93% probability of a September cut after Powell’s testimony and Trump’s potential Fed Chair reshuffle.
The euro hit a 2025 high of $1.1682/€, bolstered by dollar softness and the European Union’s €500 billion fiscal stimulus. European Central Bank rate cut expectations were overshadowed by portfolio inflows and the currency’s role as a dollar alternative.
The pound peaked at $1.3726/£, aided by BoE’s downward rate path signals and broad dollar weakness. Governor Bailey highlighted labour market slack, while Deputy Governor Ramsden cited inflation potentially undershooting targets.
*All data and information is as at the time of writing.
Key indicators:
GBP/USD: 1.3740
GBP/EUR: 1.1729
GBP/ZAR: 24.53
GOLD: $3,296.71
OIL: $67
References/sources: The Federal Reserve, Investopedia, WSJ, SLATE, Bloomberg, Reuters, POLITICO, LSEG Workspace, Trading Economics and Trading View.
Written by Citadel Advisory Partner and Citadel Global Director, Bianca Botes.
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