Don't underestimate! Why Trump's firing of Powell could trigger a Wall Street crash?

The recent turmoil in financial markets shows that Trump's aggressive approach to tariffs has caught many investors off guard.

Now, there are concerns that Trump may attempt to fire Federal Reserve Chairman Jerome Powell. Several investment strategists told MarketWatch that such a move could harm the financial markets, which in turn would affect the U.S. economy.

On Thursday (April 17), Trump publicly criticized Powell for refusing to cut interest rates, calling him "too slow" on social media and urging the Federal Reserve to follow the European Central Bank's rate cut announced that day.

The day before, Powell reiterated that the Federal Reserve would observe the impact of Trump’s tariffs on the economy and inflation, stating that they would wait for clearer data before deciding whether to cut rates further.

When asked if the Federal Reserve would intervene if the stock market crashed, Powell replied, "No." The stock market fell sharply that day.

There is still controversy over whether Trump has the authority to fire Powell. Powell emphasized again on Wednesday that current laws protect Federal Reserve members from being removed by the White House for political reasons.

On Thursday, despite the volatile market trends, investors seemed willing to give Trump some space for trust, as the S&P 500 index ultimately rose slightly, closing in positive territory on the trading day before the holiday.

Although not as strong as Warren, Sosnick stated that any decision that undermines the independence of the Federal Reserve could scare off foreign investors.

At Thursday's press conference at the White House, Trump insisted that if asked to resign, Powell would leave. Powell, however, stated that he would not do so. When asked if he really intended to remove the Federal Reserve chairman, Trump did not give a clear answer.

The Wall Street Journal reported on Thursday that Trump had expressed thoughts of dismissing Powell multiple times but had been advised against it by his team of advisors.

Not all Wall Street figures oppose replacing Powell. Jay Hatfield, portfolio manager at Infrastructure Capital, believes that Trump may indeed have reasons to dismiss Powell, especially since he refused to raise interest rates amid rising inflation at the end of 2021.