Introduction to the Crisis
President Donald Trump’s feud with Federal Reserve Chair Jerome Powell has put financial markets on high alert. The possibility of Trump firing Powell has sparked intense speculation and fear of market instability. But what would happen if Trump actually went through with it? And how would the volatile cryptocurrency market react?
Legal Problems
Trump wants the Federal Reserve to cut interest rates aggressively, but Powell is resisting, prioritizing inflation control instead. This disagreement has led to talk of Powell’s dismissal. However, Powell claims that Trump lacks the legal authority to fire him without a valid reason. The Federal Reserve Act protects governors from arbitrary removal, and any attempt to fire Powell would likely lead to immediate lawsuits. Analysts warn that this would create a huge mess, with litigation potentially dragging on for months and causing prolonged uncertainty in all markets.
Dollar Plunge and Crypto’s Potential Lift
Deutsche Bank predicts that firing Powell could trigger a sharp fall in the dollar, with the trade-weighted dollar potentially dropping 3-4% within 24 hours. This would likely boost Bitcoin, as investors often view it as a hedge against a weak dollar. History has shown that Bitcoin thrives during periods of dollar weakness. Some predict that Bitcoin could surge to $150,000 if Powell is fired, anticipating swift and deep rate cuts from a Trump-aligned successor.
Crypto’s Hedge Appeal
The removal of Powell would risk damaging the Fed’s credibility, leading to expectations of looser monetary policy and higher inflation. This scenario could benefit cryptocurrencies, which are often marketed as a hedge against inflation. Bitcoin, in particular, is positioned as "digital gold," and its price could rise as investors seek safe-haven assets. However, this remains largely untested during major crises, and the crypto reaction would likely be volatile and multifaceted.
What Are the Big Risks?
The crypto market would likely experience initial panic and broad sell-offs if Powell is fired. Rising Treasury yields could also pose a near-term threat, making safer bonds more appealing and temporarily pulling money out of volatile crypto. On the other hand, aggressive rate cuts later on could supercharge the crypto market, with speculation running wild about potential price gains. However, significant dangers loom large, including the risk of a "stablecoin crisis" and global regulators cracking down hard.
Unprecedented Territory
Ultimately, firing Jerome Powell would plunge markets into chaos, with legal battles raging for months and traditional markets reeling from the shock. Cryptocurrencies would face a complex path, with short-term pain likely due to panic selling. However, a plummeting dollar and soaring inflation could later fuel massive crypto rallies. The long-term allure of decentralized finance might strengthen permanently, but stablecoin fragility and global regulation pose severe threats.
Conclusion
The stakes for crypto and global finance could not be higher. Investors must brace for extreme volatility and be prepared for any eventuality. While the possibility of Powell’s dismissal is still uncertain, one thing is clear: the consequences would be far-reaching and potentially catastrophic. As analysts like Roger Altman warn, the idea of politicizing the central bank is "dreadful," comparing it to economies with politicized central banks. Only time will tell how this situation unfolds, but one thing is certain – the world will be watching with bated breath.
