Firing Powell? The U.S. Anti-Inflation Front May Collapse, Long-Term Inflation Risks Escalate

Core Risk: The Independence of the Federal Reserve is Ended

- If Trump fires Powell, it may break the tradition of 'presidents not interfering with monetary policy,' turning the Federal Reserve into a political vassal, prioritizing debt costs over inflation targets.

- Historical experience shows that after sudden leadership changes in central banks, inflation may rise an additional 1-2 percentage points within two years, which is detrimental to economic growth.

Market Concerns: Inflation Expectations Are Rising

- Based on data from inflation-protected bonds, the three to four-year expected inflation rate has risen from 1.5% to 2.36%, reflecting market concerns over Powell's departure.

- Inflation expectations have a 'self-fulfilling' characteristic; if the Federal Reserve's credibility is damaged, the long-term commitment to low inflation may fail, leading to a sustained rise in inflation.

Key Warning: The Front Line May Fail and Erupt During a Crisis

Current inflation has receded in the short term, but the Federal Reserve's core credibility in combating inflation relies on its independence. If the front line collapses, it is akin to 'brake failure,' and risks may concentrate and erupt during future crises.