President Donald Trump wants lower interest rates so badly he’s pushing to remove the Federal Reserve chief. But Jerome Powell’s ouster might have the opposite effect, according to Wall Street. Trump on Wednesday denied that he was planning to remove Powell from his post as central bank chairman. To be sure, he added that he doesn’t “rule out anything.” On top of that, The New York Times reported Trump has actually drafted a letter for Powell’s dismissal. For months, Trump has called on the Fed to lower rates. He even said on Truth Social this week that the Fed should cut rates by 3 percentage points from current levels. For his part, Powell confirmed earlier this month that the central bank would have already lowered rates were it not for the Trump administration’s tariff announcements . However, JPMorgan warned that Powell’s removal could actually send long-term rates spiking higher. “Any reduction in the independence of the Fed would likely add upside risks to an inflation outlook that is already subject to upward pressures from tariffs and somewhat elevated inflation expectations,” Michael Feroli, the bank’s chief U.S. economist, wrote in a note Wednesday. “Moreover, market participants could demand greater compensation for inflation and inflation risks, thereby increasing longer-term interest rates, weighing on the outlook for economic activity, and worsening the fiscal position,” he added. Both the 2-year Treasury yield and the benchmark 10-year Treasury rate have actually declined in 2025, but that could change if Trump moves ahead, especially on the long end. The short-term 2-year yield traded around 3.911% on Thursday after starting the year at 4.24%. The 10-year yield began 2025 at 4.57% and now sits at 4.459%. The 10-year is the benchmark for many consumer rates like those on auto loans. US10Y YTD mountain US 10-year yield in 2025 Deutsche Bank strategist Jim Reid agrees with JPMorgan and noted that Wednesday’s moves gave investors a glimpse into what a Powell-firing would do to rates. In the roughly 60 minutes between the White House official’s comments were released and Trump’s denial, “the probability of Powell being ousted by the end of the year increased by around 15pp to 38%. Over this period, 10yr USTs yields climbed around 5bps, 30yr yields rose around 11bps, 2yr yields fell round 5bps and the EUR rose around 1.4% against the Dollar,” Reid said. “So, if you wanted to make a very crude calculation about what the immediate impact would be if he did fire Powell, you could multiply these numbers by four to get close to 100%. So 10yr yields up another 20bps, 30yr yields up around 45bps, 2yr yields down another 20bps and maybe the dollar falling nearly 6%,” he said.
