The market’s reaction was sudden and telling when reports on Wednesday said that US president Donald Trump was set to fire Federal Reserve chair Jerome Powell imminently.
The yields on long-dated US Treasuries jumped with the 30 year catapulting above 5%. So much for disaster fatigue.
Any notion that markets had become immune to the president's erratic behaviour were firmly rejected.
It turned out to be one thing for him to bomb Iran, but another to fire the head of the Federal Reserve’s board of governors.
Of course, Powell’s position is more than just one among a dozen. As chair, his role is to set the tone, frame the debate, and ultimately guide where the consensus ends.
Nevertheless, one should remember the internal dynamics of decision making at the Federal Reserve.
Its Open Market Committee has a clear dual mandate — to achieve maximum employment and stable prices.
Policy making is a group effort which, by its nature, tends to restrain any sudden shifts in policy.
Even when Powell's term as chair officially ends in May 2026, the committee’s response — how it reacts to incoming data — is unlikely to change overnight. That internal dynamic could keep policy on a steady course for a while.
As an institution, the Fed has historically valued its continuity and a degree of orthodoxy. History also suggests that political appointees often shed their past affiliations once they have taken office.
Ultimately, the power of the Fed chair comes not from a title, but from shaping a view and building a consensus. An incoming chair — parachuted into position with a political agenda — may struggle to garner the required gravitas among his longstanding peers.
Trump and his allies like to give the impression that they are ripping up the political and economic orthodoxy during his second presidency. Whether they really are for the long-term remains to be seen. A change at the top of the Fed is more likely to result in evolution than revolution.