Fed Chairman Faces Political Storm

Fed Chairman Powell is facing unprecedented political pressure. This power struggle, which began seven years ago, has now evolved into a public political storm that not only threatens the independence of the Fed but also affects the nerves of global financial markets.

Seven Years of Grievances: From Appointment to "Palace Coup"

In February 2018, Powell assumed the position of Fed Chairman. At that time, he was highly anticipated to implement loose monetary policies to stimulate economic growth. However, just a few months later, the relationship between the two took a sharp turn for the worse.

In October 2018, voices publicly criticizing Powell emerged for the first time, accusing the Fed of raising interest rates too quickly as the "biggest threat." Since then, the verbal battle between the two sides has never ceased.

As the 2024 election year approaches, the situation becomes more tense. Criticism is escalating, with repeated public calls for Powell to resign. However, under U.S. law, the president does not have the authority to dismiss the Fed chairman due to policy disagreements unless there is clear evidence of wrongdoing or gross negligence.

Renovation Controversy: A New Battleground for Political Games

In July of this year, an unexpected breakthrough emerged. The renovation project of the Fed headquarters suddenly became the focus, being accused of significant violations. At the same time, rumors circulated that Powell was "considering resignation," causing the situation to escalate rapidly.

In the face of this political storm, Powell chose to confront it directly. He requested the inspector general to continue reviewing the renovation project and explained in detail through official channels the reasons for the rising costs, refuting the accusations of "luxurious renovations."

The Dilemma of Monetary Policy

Currently, Powell is facing a dilemma in monetary policy. On one hand, potential tariff policies may bring upward pressure on prices; on the other hand, the labor market has shown signs of cooling. This dual threat poses significant challenges to the Fed's policy-making.

If the Fed cuts interest rates too early, it may lead to uncontrollable inflation expectations; if it chooses to raise interest rates to stabilize inflation, it could trigger turmoil in the bond market and even trigger a "financial panic."

Potential Market Impact of Turnover

If Powell resigns under pressure, global financial markets may face severe turmoil. Analysts indicate that the dollar index could plummet by 3%-4% within 24 hours, and the fixed income market may experience a sell-off of 30-40 basis points. The dollar and bonds may face ongoing risk premiums, and investors may also be concerned about the politicization of the Fed's currency swap agreements with other central banks.

Some experts believe that the "likelihood of Powell stepping down early is relatively low", but if it happens, it will lead to a steepening of the U.S. Treasury yield curve, as investors will expect a decline in interest rates, accelerating inflation, and a weakening of Fed independence. This could create a "deadly combination" for the depreciation of the dollar.

For the risk asset market, if the Fed lowers interest rates in advance under conditions of economic stability and low unemployment, it may temporarily boost market sentiment, including the cryptocurrency market. However, considering that the current interest rate level is still relatively high, there is still a lot of monetary policy space to be released in the future.

Regardless of the outcome, this storm has highlighted the complex game between monetary policy, political power, and market independence. Global markets are holding their breath, watching the final direction of this storm.