Investors Betting on Powell May Be In for a Shock, Survey Shows
(Bloomberg) — A majority of respondents to the latest Markets Pulse survey expect Federal Reserve Chair Jerome Powell to stay at the helm until his term expires.
Powell won’t depart the Fed before 2026, with his term set to end in May, according to most of the 146 participants in a poll conducted July 17-18. This suggests few investors believe President Donald Trump — who has lobbed criticism over interest rates almost daily in recent weeks — will follow through with his threats to oust the central bank chief.
Traders got a taste this week of how a premature Powell exit would play out. Reports on Wednesday that Trump was likely to fire Powell imminently rocked assets from stocks to bonds and the US dollar — only for the president to push back hours later.
“If there was a concerted effort to remove the Fed Chair from his position, the market is not priced for it,” said Skylar Montgomery Koning, a currency strategist at Barclays.
Hopes for Powell to complete his term are being supported by the idea that such an ouster — which would be a first — would very likely trigger a legal battle to ultimately be settled by the Supreme Court. Yet some are still pondering the question of just how much damage his dismissal could cause.
In that scenario, Deutsche Bank strategists envision a potential jump of more than 40 basis points in the Treasury 30-year yield and a drop of around 4% to 6% in the US dollar — all of which would be historic, if not unprecedented.
Survey respondents agree, saying long-dated Treasuries and the greenback would suffer most in the aftermath of a Powell removal. Yield-curve steepeners were their favored trade, among various potential responses.
Asked which of the candidates to succeed Powell had the most credibility, Fed Governor Christopher Waller was survey respondents’ top pick, closely followed by Treasury Secretary Scott Bessent.
What Bloomberg Strategists Say:
“Federal Reserve Governor Christopher Waller’s indication that he would be interested in leading the central bank means he could be seen as a de facto shadow Fed chair.” — Edward Harrison, Markets Live Strategist. For full analysis, click here.
In a Bloomberg TV interview on Friday, Waller argued for a rate cut as soon as this month to support the labor market and hinted he would dissent if his colleagues were to vote in favor of holding borrowing costs.
While the Fed’s top job is extremely important, the Fed chair alone cannot control interest rates. Any adjustment in policy must be approved by a majority of the Federal Open Market Committee.
Peter Vassallo, portfolio manager at BNP Paribas Asset Mgmt USA, noted how the board could be a “stabilizing force.”
“Despite that, market psychology can be such that we could still see some panic in the back end” of the curve, Vassallo said by phone.
–With assistance from Brendan Fagan and Carter Johnson.
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