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If President Trump gets his way and removes Jerome Powell as chairman of the U.S. Federal Reserve, the market reaction would be swift and brutal, Deutsche Bank’s George Saravelos argues. It could collapse the currency and bond markets, he says in a note seen by Fortune. Polymarket puts the chances of a Powell ouster at 19%. “We consider the removal of Chair Powell as one of the largest underpriced event risks,” Saravelos says.
Deutsche Bank published an explosive research note over the weekend titled simply, “What if ?” (And yes, it includes that idiosyncratic use of extra spaces in front of the question mark.)
Written by global head of FX research George Saravelos, it explores what might happen if President Trump gets his way and forces Jerome Powell out of the chairmanship of the U.S. Federal Reserve in order to replace him with someone who agrees with Trump that interest rates should be lower.
“We believe the market reaction would be large,” the note says. “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.”
Saravelos declined further comment when reached by Fortune.
The note is important because while most investors do not believe it is likely that Trump can actually replace Powell before his term is up next May, they do not believe it is impossible. Bettors on Polymarket, the crypto predictions exchange, currently put the chance of Powell’s removal at 19%.
Until recently, Trump’s hatred of Powell was expressed mostly through angry social media posts. He has given Powell a nickname, “Too Late,” and said he has been “whining like a baby about non-existent Inflation for months, and refusing to do the right thing.”
But last week, the threat against Powell became more real when Russ Vought, director of the Office of Management and Budget, sent Powell a letter demanding that he answer a series of questions about the renovation of the Fed’s HQ.
He gave Powell seven business days to reply—a deadline that expires on July 21.
Vought alleges that Powell misled Congress when he testified recently that the renovation did not include luxurious touches such as a roof garden with a set of beehives.
“There are no new water features. There’s no beehives and there’s no roof terrace garden,” Powell said.
Vought says that those elements were in the plan approved by the National Capital Planning Commission, and if Powell has changed the construction plans, then that’s a violation of the National Capital Planning Act because the renovation is not following the approved plan.
