Trump Assault On Fed Autonomy Has Asia On A Razor's Edge

2025-07-17 07:02:10

(MENAFN- Asia Times) TOKYO – Donald Trump's threat to fire the head of the Federal Reserve, America's central bank, is a financial train wreck unfolding in real time for Asia.

No region is more on the frontlines of the shockwaves from any Trump move to dump Fed Chair Jerome Powell well before his term ends in May 2026. This risk seems like more of a“when” than an“if” as the US president's tariffs backfire on the globe's biggest economy.

Trump, it appears, views Powell as a ready scapegoat for the economic pain his import taxes are causing. And if his attacks on the Fed's autonomy prod Powell to cut benchmark rates sooner than later, Trump may figure the end justifies the means to stimulate a US economy sagging on his watch.

For Asia's export-reliant economies, though, the real chaos might just be starting. Trump firing Powell is“one of the largest underpriced event risks” for markets, said George Saravelos, global head of currency strategy at Deutsche Bank.

“It's stating the obvious that investors would likely interpret such an event as a direct affront to Fed independence, putting the central bank under extreme institutional duress,” Saravelos notes.“With the Fed sitting at the pinnacle of the global dollar monetary system , it is also stating the obvious that the consequences would reverberate far beyond US borders.”

The dollar, Saravelos reckons, would plunge between 3% and 4% in 24 hours if Trump fires Powell. He said,“the empirical and academic evidence on the impact of a loss of central bank independence is fairly clear: In extreme cases, both the currency and the bond market can collapse as inflation expectations move higher, real yields drop and broader risk premia increase on the back of institutional erosion.”

“At a minimum,” Saravelos said,“we would expect a sustained and persistent risk premium to be subsequently embedded in both the US dollar and the Treasury market, with exceptionally high sensitivity to both the mix of data and the conduct of monetary policy in the subsequent months.”

Ian Bremmer, CEO at Eurasia Group, said,“It remains to be seen whether Trump will actually oust Powell early , but such a move would be unprecedented, and would roil global markets long accustomed to the political independence of the US's most powerful financial official.”

Naturally,“most market analysts think it would send a signal that the Fed has lost its independence,” said Greg Valliere, strategist at AGF Investments.

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