What Happens If the Fed Chair Is Removed? The Fed, the Dollar, and the Fallout

What Happens If the Fed Chair Is Removed? The Fed, the Dollar, and the Fallout

If Federal Reserve Chair Jerome Powell is removed — whether through resignation or dismissal — markets won’t just react to the news. They’ll respond to what it represents: a direct challenge to the independence of the world’s most powerful central bank.

In such a scenario, you should expect immediate volatility, a repricing of U.S. institutional risk, and potential acceleration of global dedollarization.

Why the Tension Exists

During his presidency, Trump often criticized the Fed for raising rates, favoring lower interest rates and a weaker dollar to boost U.S. competitiveness. This created tension between political goals and the Fed’s data-driven approach — a dynamic that influenced dollar movements across administrations.

Historical Dollar Performance: From Trump’s 1st Term - Biden’s Term - Trump’s 2nd Term

Trump’s 1st Term (2017–2021): Dollar Reversal and Recovery

• Early Weakness: The dollar declined in 2017 amid trade policy uncertainty, tax reform volatility, and strong global growth supporting other currencies.
• Recovery Phase: From 2018 to 2020, the dollar rebounded as the Fed hiked rates and risk sentiment shifted. Rising yields and global tensions supported renewed demand for the greenback.

Biden’s Term (2021–2025): Hawkish Peak, Then Structural Decline

• 2021–2022: The Fed’s aggressive rate hikes and QT in response to inflation pushed the dollar to a multi-decade high above 114.
• 2023–2024: As inflation cooled and policy peaked, the dollar softened. Markets priced in a pause and eventual rate cuts, reversing earlier gains.

2025: Dovish Fed Meets Political Pressure

• Rate Cuts Ahead: With inflation easing and growth slowing, the Fed is signaling potential rate cuts, with markets pricing in 50–75bps this year.
• Policy Uncertainty: Concerns about political influence over the Fed are resurfacing, raising questions around leadership and independence.
• De-dollarization Risk: Global central banks continue shifting away from the dollar — a trend that could accelerate if U.S. policy credibility weakens.

Projected Trump 2nd Term: Confidence Test for the Dollar

The chart projects a bearish continuation in the dollar index, breaking down from the current consolidation phase and forming lower highs — a sign that markets are pricing in:

• Dovish policy shift (rate cuts, QE return)
• Loss of institutional trust in the Fed
• Weaker USD from trade-focused, inflation-tolerant policies
• De-dollarization tailwinds from global reserve shifts

Unlike Trump’s first term, where the Fed pushed against his dollar-weakening agenda, his second term may align with a dovish, politically-influenced Fed, putting sustained pressure on the greenback.

Why Fed Independence Matters

The Federal Reserve’s credibility hinges on its ability to operate free from political pressure. When that independence is questioned, markets lose faith in the stability of U.S. monetary policy. This isn’t just about who runs the Fed — it’s about whether global investors believe the rules of the game are still intact.

If that credibility is shaken, it raises serious questions:

• Is monetary policy still driven by data?
• Will rate decisions now follow political motives?
• Can global institutions still trust the U.S. dollar as a stable reserve?

If the answer is no — or even uncertain — market trust deteriorates, fast.

A compromised Fed sends signals that ripple through global bond markets, FX, and commodities. Traders know: when central banks lose independence, currencies lose credibility.

Bearish Outlook for the U.S. Dollar (Most Likely Scenario)

If Powell exits under political pressure, the market may interpret it as:

• Loss of institutional trust: Investors may question the long-term reliability of U.S. economic governance.
• Weaker dollar bias: A politically influenced Fed is more likely to pursue rate cuts and looser policy, weakening the greenback.
• Capital flight: Global funds could rotate more into gold, yen, Swiss franc, and even crypto as confidence in the dollar erodes.
• Safe-haven surge: Gold and Treasury demand may rise, but ironically, the dollar could fall against other safe havens.

Bullish Dollar Case (Less Likely, Conditional)

The dollar could recover if Powell’s replacement is:

• If the market perceives Powell’s replacement as a hawkish or pragmatic technocrat, dollar strength could return — especially if rates remain elevated or rise.
• A short-term policy shift toward stronger yields or deregulation could support U.S. assets, drawing in capital.
• However, this would require swift reassurance from the new Fed leadership that monetary policy will remain disciplined and credible.

In this case, traders may see a relief rally — especially if U.S. yields remain elevated and inflation expectations rise. But this is conditional and hinges on how quickly confidence is restored.

2025 Context: The Fed’s Dovish Turn

Entering 2025, the Federal Reserve has already started shifting gears:

• Inflation has cooled, and economic growth is slowing
• The Fed has signaled its willingness to cut rates, with markets pricing in 50–75 bps in reductions this year
• This policy pivot — if accelerated by leadership changes — may deepen dollar weakness

This dovish bias contrasts with the hawkish stance of 2022–2023, when the Fed led the global tightening cycle. That cycle lifted the dollar to multi-decade highs. The current shift now threatens that strength.

Trader’s Take: What If Trump Fires Fed Chair Powell?

If Jerome Powell were to step down or be removed, markets would likely respond not only to the leadership change but also to the broader implications for institutional stability. Such a development could raise concerns about central bank independence, potentially amplifying attention on ongoing global trends — including the gradual shift toward de-dollarization.

As a trader, you don’t need to debate the legality — just recognize the signal: a politically compromised Fed means the dollar’s dominance is no longer guaranteed.

Why Traders Should Care

Tensions often emerge when political goals favor lower rates and a weaker dollar to boost growth, while the Fed focuses on price stability and long-term economic health, maintaining independence from short-term pressures.

• Lower interest rates to fuel growth and boost the stock market
• A weaker dollar to support U.S. exports
• A central bank that doesn’t "fight" his fiscal policy

If the Fed is seen as politically influenced, markets may question its neutrality — potentially accelerating dedollarization as global institutions reassess the dollar’s reserve role.

De-dollarization: The Silent Risk That Could Get Louder

For years, countries like China, Russia, and parts of the Middle East have been reducing exposure to the U.S. dollar — diversifying into:

• Gold reserves
• Bilateral trade in local currencies
• Central bank digital currencies (CBDCs)
• Alternative financial systems (CIPS instead of SWIFT)

They’ve done this gradually — but if the U.S. is seen as politically interfering in monetary policy, that process could accelerate. A Powell ousting would send a clear message globally: the Fed is not independent, and U.S. policy may no longer be market-driven — it’s politically steered.

This Means:

• Sovereign buyers (central banks) may reduce U.S. bond purchases
• Global reserve allocations could shift more toward gold, yuan, and euro
• Demand for dollars in global trade could weaken
• Liquidity shocks in emerging markets could rise as capital flees dollar exposure

This is not immediate collapse — but a slow leak of trust in the dollar’s role as the world’s anchor. That’s a long-term bearish weight.

How to Trade It

1. Be reactive, not predictive — you don’t need to guess if Powell will be fired. Just know what to do if it happens.
2. Watch gold and VIX closely — they’ll likely lead the reaction.
3. Set alerts on DXY, USDJPY, and XAUUSD — those pairs will offer cleaner setups in the first wave of volatility.
4. Fade overreactions only after clarity — don’t try to catch the knife until the political dust settles.

Refer to this blogs for approaches:

https://acy.com/en/market-news/education/smc-playbook-series-beginners-guide-j-o-04032025-155530/

https://acy.com/en/market-news/education/ultimate-guide-market-trends-price-action-j-o-03252025-141804/

https://acy.com/en/market-news/education/forex-trading-strategy-beginners-j-o-03272025-101033/

Technicals vs. Fundamentals: What Matters More in these Shifting Markets?

Technicals Tell You What the Market Is Doing

• Price, volume, structure — all of it is real-time evidence.
• Technicals show you where liquidity is, how participants are reacting, and where the market is likely to go next.
• Tools like market structure, fair value gaps, key levels, and order flow help you execute with precision.
• Most short-term and intraday traders rely heavily on technicals, because price reacts faster than news.

If you want to enter and exit with timing, technicals are your edge.

Fundamentals Tell You Why the Market Is Moving

• They give you the macro backdrop: inflation, interest rates, Fed policy, geopolitical risk, sentiment.
• Fundamentals are essential for building directional bias, especially for swing or position trades.
• Economic data, central bank tone, and capital flows set the broader trend — even if price wobbles short term.

If you want to understand the narrative and avoid fighting long-term flows, fundamentals matter.

So Which One Wins?

👉 Follow fundamentals to frame the trade.

👉 Use technicals to time the trade.

You might know the dollar is weakening due to a dovish Fed — but if price is still consolidating above support, that’s not your entry yet.

Smart money trades both. Fundamentals provide the bias. Technicals provide the precision.

“The market moves on perception, but it executes through price.”

Master both — but let price confirm the story before you risk capital.

Check Out Our Market Education

Learn how to navigate yourself in times of turmoil. Check out my market education links:

https://acy.com/en/market-news/education/how-to-identify-riskon-and-riskoff-market-sentiment-a-complete-trader’s-guide-132336/

https://acy.com/en/market-news/education/how-to-trade-risk-on-risk-off-sentiment-j-o-04112025-152146/

https://acy.com/en/market-news/education/ultimate-guide-market-trends-price-action-j-o-03252025-141804/

Want to learn how to trade like the Smart Money? Check out my new contents:

https://acy.com/en/market-news/education/smc-playbook-series-beginners-guide-j-o-04032025-155530/

https://acy.com/en/market-news/education/smc-playbook-series-part-2-spot-liquidity-pools-trading-j-o-103837/

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