Renovation turmoil triggers financial earthquake? Fed chairman faces immense pressure

Fed Chairman Powell is in the most difficult moment of his career. A seemingly outrageous political drama is pushing global market sentiment to a critical point.

The conflict between Powell and Trump has a long history, with the core disagreement being the orientation of monetary policy. Trump has consistently advocated for interest rate cuts to stimulate economic growth, while Powell has maintained a stance of prudent monetary policy. This disagreement has existed since 2018.

Interestingly, Powell was initially nominated by Trump and took office as the Fed chair in February 2018. However, just a few months later, Trump began to publicly criticize Powell's policy stance. Since then, the war of words between the two has continued unabated.

In 2022, Powell was reappointed, extending his term until May 2026. As the 2024 election approaches, Trump's criticism of Powell becomes increasingly intense. However, under U.S. law, the president does not have the authority to directly remove the Fed chairman due to policy disagreements.

In July of this year, the situation took a turn. The Trump team made new allegations, calling for Congress to investigate Powell, accusing the Fed headquarters renovation project of significant violations. This allegation quickly drew attention, and rumors even emerged regarding Powell's potential departure.

Currently, Powell is facing multiple pressures. On one hand, potential tariff policies may bring inflationary pressures; on the other hand, the labor market has shown signs of cooling. This complex situation poses a significant challenge for the Fed's policy-making.

Faced with pressure from Trump, Powell chose to respond directly. He not only requested to continue reviewing the headquarters renovation project but also provided a detailed response through official channels regarding the reasons for rising costs, refuting the accusations of "luxurious decoration."

If Powell is really forced to resign, global financial markets may face severe turbulence. Analysts point out that the dollar index could plummet significantly in the short term, and the fixed income market may also experience violent fluctuations. More concerning is that this could affect the external financing conditions of the United States, triggering broader economic issues.

For risk assets, if the Fed begins to cut interest rates in a relatively stable economic environment, it may boost market sentiment in the short term. However, considering the current interest rate levels, there is still a considerable amount of policy space that needs to be released in the future.

Powell's fate is not only related to monetary policy but also a touchstone for the Fed's independence. The ultimate outcome of this turmoil will have far-reaching effects on global financial markets.