Wall Street begs Trump: Please don't break the Fed

Wall Street has been happily profiting from Trump-era chaos — soaring trading revenues at big banks this quarter are a direct result of unpredictable tariff policy, shaky alliances, and governing-by-social-media. But even markets have a breaking point.

President Donald Trump this week again floated the idea of firing Federal Reserve Chair Jerome Powell. The reaction was immediate: bond yields jumped, trading volume spiked to levels not seen since April’s “Liberation Day” tariff announcement, and on Thursday morning, the Wall Street Journal’s editorial board issued a blunt warning: Don’t do it.

Trump told GOP lawmakers that he’d written a letter firing Powell and might send it. Markets didn’t wait to see if he was bluffing. Traders immediately began repositioning, selling longer-term bonds and moving into short-duration debt — classic behavior when confidence in central bank independence falters. After the negative reaction, Trump told reporters he had “no plans” to remove Powell.

Markets heard the obvious walk-back, yet remained skeptical. Bond yields fell, but only partially, suggesting that traders are far from totally convinced that the independence of the Federal Reserve is safe — even for the moment.

Meanwhile, a series of unusually well-timed currency trades also drew scrutiny, raising questions about whether individuals with advance knowledge — including potentially from within the administration — may have profited from the market reaction.

Déjà vu all over again, with a price tag in the trillions

This isn’t the first time markets have been through this particular dance, down to the persistent rumors of insider trading of insider trading. In April, Trump similarly escalated attacks on Powell — calling him “Mr. Too Late” and hinting at termination — before publicly reversing course. That walk-back sparked a rally in stocks.

But the repetition is wearing thin: traders have now seen this movie before, and this time, bond markets didn’t fully buy the denial.

The move touched a nerve not just because of what it could mean for interest rates, but because it threatens one of the few institutions in Washington still seen as steady. “This was, without a doubt, President Trump’s test to see how the market would react,” wrote the influential Kobeissi Letter, a widely followed "fintwit" account on X. The answer: not well.

Even the WSJ editorial board, hardly hostile to this White House, rushed to defend Powell. Firing him would “tie up the Fed, the Administration, and markets in messy litigation,” they wrote, noting that Powell could sue — and likely win. The Supreme Court has recently expanded presidential control over agencies amid Trump’s broad-scale attacks on the independence of Federal agencies, but carved out the Fed as a unique exception.

As The Journal pointed out, “love or loathe Mr. Powell, Mr. Trump chose him. Mr. Trump also chose the tariff taxes, and a multitude of no-growth tax and spending handouts in the new budget bill. Now the President has to live with his choices.”

About the White House’s attempt to find a reason to fire Powell because of long-standing Federal Reserve renovation process, The Journal was equally scathing: “Some in the Administration appear to think firing Mr. Powell ‘for cause’ would stand a better chance of surviving legal challenge. This explains the newfound interest over the weekend in a years-long project to refurbish the Fed’s headquarters buildings in Washington, and Mr. Powell’s supposed mismanagement of cost overruns… Talk about a silly pretext.”

Beefing with his own appointee

Trump’s public frustrations with Powell go back years, but the irony is rich: the very chaos that powers Wall Street’s profits could unravel if the Fed appears politicized. Powell last cut rates in December and traders continue to predict at least one rate cut this year.

But doing it because the president demands it? That’s exactly the reality Powell is trying to avoid. And no wonder: The Fed's mission is independent analysis, acting because the facts lead them to action, rather than political pressure.

Markets may not need stability to survive, or even to thrive. But they do need boundaries and the kind of legal protections that allow for risk-taking. Trump’s threat to fire the Fed chair tested one, reminding everyone with a foot in markets what’s at stake if it breaks.

In keeping, Wall Street is not mincing words. Goldman Sachs’ CEO David Solomon underlined the point in a CNBC interview on Thursday. “I think central bank independence, Fed independence, is very important and it’s something we should fight to preserve.”

Citibank’s Jane Fraser echoed the sentiment in a statement, saying “the independence of the Federal Reserve” is “critical to the effectiveness of our capital markets and U.S. competitiveness.”