Dr Komal Sri-Kumar warns that the Federal Reserve’s independence is once again under threat. President Trump, he writes in his weekly Srikonomics newsletter, may be attempting to build a legal case to remove Jerome Powell before his term ends in May 2026, citing cost overruns in the Fed’s DC headquarters project. There is no evidence of fraud, but that hasn’t stopped the President from floating the possibility of removing Powell using “cause” as justification, a narrow legal condition under current interpretations.
The threat alone has already moved markets. Treasury yields jumped and the dollar dropped sharply on Wednesday after Trump told reporters he had “substantial support” for firing Powell. The White House later denied any imminent dismissal, but by then, investor sentiment had already shifted. “Markets can absorb political volatility,” Sri-Kumar writes. “What they fear more is institutional erosion.”
The real concern is what happens if the President acts. Replacing Powell with a more compliant Chair would mean an immediate departure from current monetary priorities. Kevin Warsh, Kevin Hassett and Scott Bessent have all been floated as potential successors. Each has recently voiced support for lower interest rates, a stance aligned with Trump’s economic messaging ahead of the 2026 midterm elections.
Sri-Kumar argues that installing any of them would signal to markets that the Fed is now an arm of the presidency. That would weaken the dollar and drive long-term yields higher, making it more expensive to service public debt. The DXY dollar index, already down from 104 to around 98.5, could slide to 93 or below if Powell is ousted. The 10-year Treasury yield, currently drifting upwards, could surge past 5 percent well before the year’s end.
Such a move could also spook foreign holders of US Treasuries. Japan, the United Kingdom and China, which together held $2.7 trillion as of May, might reduce their holdings to avoid losses. A coordinated exit from these creditors would add more pressure on borrowing costs.
For the person chosen to replace Powell, the job would be far from enviable. “A role stripped of independence, weighed down by political expectation, and followed closely by sceptical markets,” writes Sri-Kumar. Any decision to cut rates would be viewed not as sound economic policy but as political obedience. The Fed’s hard-earned credibility would be at risk.
Sri-Kumar draws a sharp historical parallel. During Nixon’s presidency, Arthur Burns gave in to political pressure to ease monetary policy, fuelling inflation and economic instability. It took years, and Paul Volcker’s unpopular tightening measures, to restore trust in the Fed’s judgement. A similar episode now would risk triggering a new era of stagflation and fiscal fragility.
Trump might win the immediate battle to replace Powell. But Sri-Kumar believes the cost would extend far beyond the central bank. “It will be borne by every American in the form of a weaker dollar, higher mortgage rates, and the loss of the Fed as a bulwark of financial stability.”
Disclaimer: This article quotes from the weekly Srikonomics newsletter by Dr Komal Sri-Kumar, President of Sri-Kumar Global Strategies, Inc., which advises multinational investors and sovereign wealth funds. He is regularly featured on business media and speaks in global financial centres on macroeconomic risks and global markets.
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