📉 Fed President's Alleged Impeachment by Trump Shakes Markets

Statements by US President Donald Trump about the possibility of ousting Fed President Jerome Powell caused a shock effect on global markets. According to analysis by Deutsche Bank foreign exchange strategist George Saravelos, if this scenario happens, the dollar is expected to depreciate between 3 and 4 percent, while in the case of US bonds a hard and fast liquidation process will begin. This political pressure on the Fed's independence could radically alter investors' perception of risk.

Trump's Pressure on Powell Reaches New Dimension

Trump's call for Powell to “immediately resign” if his claim that Congress was misinformed about the overhaul budget at the Fed building is confirmed has triggered concerns in the markets about central bank independence. Trump has previously accused Powell of not being aggressive enough on interest rate cuts. And now he's clearly putting the dismissal card on the table. Powell, on the other hand, made it clear that he would complete his term, stressing that they would maintain the Fed's independence from such political pressures. This retrenchment has turned into not only a personal but a corporate struggle.

Reserve Currency Pressure on Dollar May Deepen

Analyst George Saravelos says such a development would not only create temporary volatility in the dollar, but could also create structural pressure on the dollar's reserve currency nature. The Fed becoming a political figure could mean long-term erosion in global investors' confidence in the United States. Especially in dollar-dependent economies with liquidity deals based on swap lines, concerns about the stability of the dollar may resurface. In this case, sudden value losses in developing country currencies, sharp volatility in commodity prices and capital flight can occur.

Chain Impact and Risk of Liquidity Crisis in the Bond Market

While US bonds are seen as the safest haven for global investors, the scenario of the Fed President's impeachment threatens this perception. After such a step, an interest rate jump of 30 to 40 basis points on long-term bonds is expected. This creates rebalancing pressure in portfolio management, which can lead to long-term investors, especially insurance funds and pension funds, aggressively liquidating their positions. Liquidity conditions may become tight, systemic vulnerabilities may emerge through repo markets.

Global Capital Flows Can Reshape

The Fed's loss of reputation could create a paradigm shift for the entire global financial system, not just for the United States. Confidence based on the reserve currency system is made possible by guaranteeing central bank independence. If that confidence is shaken, economies that want to restructure their reserves, especially China and oil-exporting countries, could take action. This, in turn, can lead to a reversal of dollarization in the long run. Capital can open the doors of a multicentric financial order by turning to alternative reserve assets — euros, gold, and even cryptocurrencies, for example.

Investor Confidence and US Economic Valuations Are Tested

Another headline that stands out in Saravelos's assessment is who to replace Trump and how that name will be perceived by the markets. If its technical competence is questioned or an overly political name is proposed, confidence in the Fed in the markets could be completely shaken. This, in turn, causes a revaluation in both US stocks and dollar-indexed assets. Tech and financial stocks, in particular, are among the first sectors to be affected by this turmoil. An increase in the risk premium can mean both a collapse in stock pricing and tightening in the credit markets.

🧠 Expert Review

Volatility is likely to intensify in the short term; a rally in alternative currencies against the dollar may be seen, and a sudden rise in bond yields may be experienced. In the medium term, investors will reshape their positions according to the credibility of the newly appointed Fed chairman. In the long run, such political interventions could accelerate dynamics that threaten U.S. financial leadership; the perception of safe harbor could give way to questions. This can lead to structural changes in investment strategies.

🛑 Disclaimer

This content is created by the Investment Desk and does not constitute investment advice. You should make your decisions based on your own research and expert advisors.

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