Trump vs Powell - The $1 Trillion Black Swan No One's Ready For
Quant Analysis Of Powell Removal Scenario And 4 Asset Classes Overview
Hi and welcome back for a Quant data driven analysis. [Full Disclaimer]
Whoever Owns The Gold Makes The Rules!
The probability of Trump removing Jerome Powell as Federal Reserve Chair has been getting real attention lately. Recent estimates have put the odds at around 20%, which I'm inclined to agree with based on Trump's escalating rhetoric. Just this week, we saw some of the most direct attacks yet, with Trump calling Powell a "loser" and saying his "termination cannot come fast enough."
This is one of those rare market events that could qualify as a genuine black swan - not because it's completely unpredictable (Trump's made his feelings abundantly clear), but because it would represent such a fundamental break with institutional norms that markets simply don't have a good template for how to react.
Legal and Political Context
The whole "can Trump fire Powell?" question is already making securities lawyers reach for their blood pressure medication. The Federal Reserve Act is clear that a Fed governor, including the Chair, can only be removed "for cause" - which has traditionally been interpreted as misconduct or gross negligence, not policy disagreements.
No U.S. President has ever fired a Fed Chair. We're in completely uncharted territory here.
What's telling about this situation is that Treasury Secretary Scott Bessent, a political ally, has reportedly cautioned against this move, citing market instability risks. When your own Treasury Secretary is waving red flags, that's usually worth paying attention to.
Impact Scenarios
The market already gave us a preview of what might happen earlier this week. On April 21, the Dow dropped nearly 950 points (2.48%) following Trump's intensified criticism of Powell. That wasn't even an actual firing - just rhetoric. If we get to an actual removal announcement, the reaction would likely be significantly more severe.
Let's walk through the key asset classes one by one:
Model for different scenarios based on the severity of market reaction and time horizon and the potential impacts across major asset classes.