A new research paper lays out what might happen if President Trump decides to fire Federal Reserve Chairman Jerome Powell, warning that whatever happens next, "it will be chaos."

“We join others in expecting this to have a materially negative impact on markets, likely driving a sell-off in equities and a counterproductive spike in long-dated yields,” Tobin Marcus and Chutong Zhu of Wolfe Research wrote in a note to clients.



Wolfe Research speculates that the Supreme Court may ultimately decide whether Trump has the authority to fire Powell for just cause.

The firm released its analysis hours after Powell’s tenure as Fed chairman looked extremely shaky, but suddenly not so shaky.

A senior White House official said earlier on Wednesday that Trump told a group of Republican lawmakers the night before that he might fire Powell "very soon."

But shortly after the official spoke, during a question-and-answer session with reporters in the Oval Office, Trump quickly and publicly disavowed what the White House had said.

“We’re not going to do that, and I’m not ruling anything out ... but I think it’s highly unlikely unless he has to go because of fraud,” Trump said.

Trump is notoriously mercurial, with a record of firing employees soon after expressing his full support.

Yet, here is Powell, whom Trump has been complaining about for months, accusing the Fed chairman of not cutting rates as the president has requested.

“There are a lot of bad ideas, but the president firing the Fed chairman, or, I should say, trying to fire him, because it’s not clear to me at all that he can succeed, is one of the worst ideas,” Roger Altman, founder of Evercore, said Wednesday.

“It’s a horrible idea,” said Altman, who served as undersecretary of the Treasury under former President Bill Clinton.

Altman noted a “stark” difference between the economic trajectories of countries with truly independent central banks, such as the United States, and those that have “politicized central banks, such as controlled by the head of state.”

For the latter, he cited Türkiye and Argentina, both of which have seen double-digit inflation in recent years.

In addition, Altman said that if Trump asked for his resignation, "I don't think Chairman Powell would agree to it."

“So I think, ultimately, this is going to be resolved in the courts,” he said.

Analysts at Wolfe Research agree with him.

“If Trump actually fires Powell, rather than just pressuring him to resign, Powell would likely sue to stop it,” Wolfe Research said in a note.

"The first big question is whether he will actually be fired as the litigation progresses," the analyst added.

They point to several other instances in which Trump fired independent agency commissioners during his second term, who sued to be reinstated.

“These lawsuits have all failed,” the analysts wrote.

“The problem this time is that Powell is the agency head, unlike other recent firings of independent agencies,” the report said. “These typically occur when Trump has already appointed new agency chairs and fired non-chair commissioners. In this case, the chair can make those firings, but no one at the Fed can really fire Powell.”

The report highlights three possible scenarios for Trump to fire Powell.

In the first scenario, Powell remains the de facto chairman of the Fed, while Trump seeks a judicial order to remove him.

In the second case, Powell "voluntarily resigned and sued for reinstatement."

In the third and most dramatic scenario, Powell seeks to remain as chairman while Trump seeks to remove him through executive action.

The report said a similar situation occurred in March when police in Washington, D.C., were asked to escort employees of the U.S. Institute of Peace out of their building after workers from Musk's so-called Department of Government Effectiveness accused them of trespassing.

“Needless to say, Powell being escorted out of the Fed by D.C. police or federal law enforcement is worrisome for markets,” analysts at Wolfe Research wrote.

If a lawsuit is filed over Trump's firing of Powell, it will likely end up in the Supreme Court. Analysts noted that the majority recently said in an unrelated case that "it treats the Fed differently from other independent institutions when it comes to protections against firing for cause."

“The Federal Reserve is a uniquely structured quasi-private entity that follows in the distinct historical tradition of the First and Second Banks of the United States,” the court majority wrote in an order allowing Trump to fire officials at two other agencies.

“We think Powell has a good chance of prevailing in court, but it is far from a sure thing,” Wolfe analysts said.