If Trump really "opens" Powell, what does it mean to the market? This is Goldman Sachs' "gold price of $4,500" scenario

Source: Wall Street News   15:40

Is Trump Issuing a Challenge to Powell? Goldman Sachs Warns: Crisis of Fed's Independence May Trigger a Surge in Gold Prices

Seeing that the European Central Bank has cut interest rates repeatedly, Trump once again pointed the finger directly at Powell, threatening to fire him if he doesn't cut interest rates again - this is bringing new uncertainties to the financial market.

Analysis points out that although it is not clear legally, both those within Trump's team and market experts have warned that such a move may lead to a serious market collapse.

Goldman Sachs points out that historically, whenever a central bank loses its independence, it will lead to a confidence crisis in fiat currency, and as a result, the gold price has increased significantly. Goldman Sachs predicts that once the Federal Reserve becomes a political tool, it will push the gold price up to $4,500 per ounce.

Is Trump in a Hurry? Criticizing Powell Three Times in One Day

Local time on Wednesday, Powell delivered a speech at the Economic Club of Chicago. During the speech, he reiterated that policies such as the tariff policy have made the economy face high uncertainties, and the Federal Reserve will wait until the situation is clearer before considering cutting interest rates. When asked whether the Federal Reserve would intervene in the event of a sharp stock market decline, Powell said directly that it would not.

On Thursday morning, Trump posted on social media:

"Jerome Powell, the Federal Reserve Chairman who is always too late and wrong, issued a report yesterday, which is another typical and complete 'chaos'!

Powell should have lowered interest rates long ago, just like the European Central Bank did, but he should definitely lower them now. The sooner Powell leaves, the better!"

During the afternoon trading session of the US stock market on Thursday, Trump called out to Powell twice more.

Trump said: "I don't think Powell is doing his job well. If I ask for it, he has to leave. Powell doesn't make me happy. He is always slow to act." Dozens of minutes later, Trump "criticized" Powell again, saying that the Federal Reserve should cut interest rates, which is what the Fed owes to the American people. Powell will face great political pressure.

According to media reports, Trump has been talking about firing Powell for some time, but his advisors have been trying to stop him.

At a White House press conference, Trump insisted that if he asks Powell to step down, Powell will leave. But when Trump was asked whether he was trying to remove the Federal Reserve Chairman, he did not give a clear answer; while Powell firmly stated that he would not leave.

Can Trump Do It? The Key Lies in This Ruling in May

One of the key questions here is: Does Trump have the power to fire Powell?

At present, the answer is not clear.

According to federal law, members of the Federal Reserve Board are nominated by the president and confirmed by the Senate, with a term of 14 years; one of them serves as the chairman at the same time, with a term of 4 years. During this period, the president must have "good cause" (usually understood as misbehavior or dereliction of duty) to remove them from their positions.

This restriction is designed to protect the Federal Reserve from political interference. However, a ruling by the US Supreme Court in May may change all this.

As previously mentioned by Wall Street News, the Trump administration has urgently requested the US Supreme Court to authorize the president to fire senior officials of two independent federal agencies (Gwynne Wilcox of the National Labor Relations Board and Cathy Harris of the Merit Systems Protection Board), and has requested a special session to hear the case in May.

Krishna Guha, an analyst at Evercore ISI, warned that the ruling in the "Trump v. Wilcox" case may undermine the independence of the Federal Reserve and other government agencies by expanding the president's power and allowing the president to fire officials of agencies that were previously considered immune to political pressure.

Powell also mentioned this case in his speech on Wednesday:

"People often talk about this case. I don't think this decision will apply to the Federal Reserve, but I'm not sure. This is the situation we are currently closely monitoring."

Betsen and Warren Warn: The Risk of Market Collapse Is Imminent

According to media reports, US Treasury Secretary Betsen has warned White House officials several times that any attempt to fire Powell may destabilize the financial market.

At the same time, Massachusetts Democratic Senator Elizabeth Warren also warned in an interview that firing the Federal Reserve Chairman may lead to the collapse of the US market.

Although Warren often publicly criticizes Powell, she admits that firing the Federal Reserve Chairman will bring very great risks:

"Although I often conflict with Powell on issues of regulations and interest rates, please understand this: If the President of the United States can fire Chairman Powell, it will cause the US market to collapse."

Kathy Jones, Chief Fixed Income Strategist at the Schwab Center for Financial Research, cautioned that attempting to fire Powell may intensify the selling of US Treasuries and the US dollar, a pattern that usually only appears in emerging market economies or when confidence in a country's governance is shaken.

Jones said:

"This is not something that would be done in major developed countries. The more vigorously he pushes this, the worse the situation will be.

"Even if investors approve of Powell's potential replacement, the damage has already been done - bond yields will rise and the US dollar will fall. Because there will be no credibility left."

Goldman Sachs: In the Extreme Case of the Fed Being "Controlled", the Gold Price Will Soar to $4,500

In this debate about the independence of the Federal Reserve, analysts at Goldman Sachs warned that once the Federal Reserve loses its independence, the market will face extreme volatility.

As previously mentioned by Wall Street News, in Goldman Sachs' extreme scenario prediction, an "obedient Federal Reserve" will yield to political pressure and cut interest rates sharply regardless of inflation risks, which will lead to the depreciation of the US dollar, a decline in real interest rates, and thus drive the gold price to soar.

When the Fed's decisions are no longer based on economic data but on the political needs of the White House, gold will be snapped up as a safe-haven asset. Goldman Sachs points out that historically, whenever a central bank loses its independence, it will lead to a confidence crisis in fiat currency, and the gold price has increased significantly as a result.

Goldman Sachs expects that in an extreme tail risk scenario, such as increased market concerns about the Fed's subordination or the risk of changes in US reserve policies, leading to a continuous increase in central bank demand to 110 tons per month, a rebound in ETF holdings due to a US recession to the levels during the pandemic, and speculative positions reaching the top of the historical range, the gold price may approach $4,500 per ounce by the end of 2025.

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