Trump issues a challenge to Powell? Goldman Sachs warns: A crisis of Federal Reserve independence could trigger a surge in gold prices.
As the European Central Bank continues to cut interest rates, Trump has once again targeted Powell, threatening to fire him if rates are not lowered—this is bringing new uncertainty to the financial markets.
Analysts point out that, although legally unclear, both Trump's team and market experts warn that this move could lead to a severe market crash.
Goldman Sachs notes that historically, whenever central banks lose their independence, it leads to a crisis of confidence in fiat currency, causing gold prices to soar. Goldman Sachs predicts that if the Federal Reserve becomes a political tool, gold prices could rise to $4,500 per ounce.
<h2>Is Trump anxious? Calling out Powell three times in one day</h2>
On Wednesday local time, Powell spoke at the Chicago Economic Club, during which he reiterated that policies such as tariffs create high uncertainty for the economy, and the Fed will wait until the situation is clearer before considering rate cuts. When asked if the Fed would intervene during a stock market crash, Powell stated unequivocally that it would not.
On Thursday morning, Trump posted on social media:
<blockquote>
&#34;Always too late and wrong&#34; Federal Reserve Chairman Jerome Powell released a report yesterday, this is yet another typical, complete &#34;chaos&#34;!
Powell should have lowered rates long ago like the European Central Bank, but he should definitely lower them now. The sooner Powell leaves, the better!
</blockquote>
On Thursday during the U.S. stock market's midday session, Trump called out Powell twice more.
Trump said: I don't think Powell is doing his job well. If I ask him to leave, he has to go. Powell does not make me happy. He is always slow to act; after a few minutes, Trump again &#34;attacked&#34; Powell, saying the Fed should cut rates, which is what the Fed owes the American people. Powell will face significant political pressure.
According to media reports, Trump has been talking about firing Powell for some time, but his advisors have been working to prevent it.
Trump insisted at a White House press conference that if he asked Powell to leave, Powell would step down. However, when Trump was asked if he was trying to remove the Federal Reserve Chairman, he did not give a clear answer; Powell, on the other hand, firmly stated that he would not leave.
<h2>Can Trump do it? It hinges on a ruling in May</h2>
One key question is: Does Trump have the authority to fire Powell?
Currently, the answer does not seem clear.
According to federal law, Federal Reserve governors are nominated by the president and confirmed by the Senate, serving a term of 14 years; one of them serves as chairman for a term of 4 years. During this time, the president must have &#34;just cause&#34; (typically understood as misconduct or malfeasance) to remove them from office
This restriction is intended to protect the Federal Reserve from political interference. However, a ruling by the U.S. Supreme Court in May may change everything.
As previously mentioned by Wall Street Watch, the Trump administration has urgently requested the U.S. Supreme Court to authorize the president to dismiss 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 hearing on the case in May.
Evercore ISI analyst Krishna Guha warned that the ruling in the &#34;Trump v. Wilcox&#34; case could expand presidential power, allowing the president to dismiss officials of agencies previously considered immune from political pressure, thereby undermining the independence of the Federal Reserve and other government agencies.
Powell also mentioned this case in his speech on Wednesday:
<blockquote>
“People often talk about this case. I don’t think this decision will apply to the Federal Reserve, but I’m not sure. What we are closely monitoring right now is this situation.”
</blockquote>
<h2>Becerra and Warren Warn: Risk of Market Collapse is Imminent</h2>
According to media reports, U.S. Treasury Secretary Becerra has repeatedly warned White House officials that any attempt to dismiss Powell could destabilize financial markets.
Meanwhile, Massachusetts Democratic Senator Elizabeth Warren also warned in an interview that dismissing the Federal Reserve Chair could lead to a collapse of the U.S. market.
Although Warren often publicly criticizes Powell, she acknowledges that dismissing the Federal Reserve Chair would carry significant risks:
<blockquote>
“While I often clash with Powell on regulatory and interest rate issues, please understand this: If the U.S. president can dismiss Chair Powell, it will cause the U.S. market to collapse.”
</blockquote>
Kathy Jones, Chief Fixed Income Strategist at Schwab Center for Financial Research, cautioned that attempting to dismiss Powell could exacerbate the sell-off of U.S. Treasuries and the dollar, a pattern typically seen only in emerging market economies or when confidence in a country's governance is shaken.
Jones stated:
<blockquote>
“This is not something that is done in major developed countries; the more he pushes this, the worse it gets.”
“Even if investors recognize Powell's potential successor, the damage has been done—bond yields will rise, and the dollar will fall. Because there is no credibility left.”
</blockquote>
<h2>Goldman Sachs: In an Extreme Scenario of a &#34;Controlled&#34; Federal Reserve, Gold Prices Could Soar to $4,500</h2>
In this debate over the independence of the Federal Reserve, Goldman Sachs analysts warned that once the Federal Reserve loses its independence, the market will face extreme volatility.
As previously mentioned by Wall Street Watch, in Goldman Sachs' extreme scenario forecast, **a &#34;compliant Federal Reserve&#34; would yield to political pressure and significantly cut interest rates despite inflation risks, leading to a depreciation of the dollar, a decline in real interest rates, and subsequently driving gold prices to soar
**
When the Federal Reserve's decisions are no longer based on economic data but rather on the political needs of the White House, gold will be frantically sought after as a safe-haven asset. Goldman Sachs points out that historically, whenever central banks lose their independence, it leads to a crisis of confidence in fiat currencies, resulting in a significant increase in gold prices.
Goldman Sachs expects that in extreme tail risk scenarios, such as increased market concern over the Federal Reserve's subordination or risks of changes in U.S. reserve policy, leading to central bank demand rising continuously to 110 tons/month, a rebound in ETF holdings to pandemic levels due to a U.S. recession, and speculative positions reaching historical highs, the gold price could approach $4,500 per ounce by the end of 2025.

Despite Trump's repeated threats to fire Powell if he does not cut interest rates, such actions lack legal justification. The U.S. Supreme Court's ruling in May on the "Trump v. Wilcox" case may open the door for his intervention in Federal Reserve decisions. In Goldman Sachs' extreme scenario forecast, a "compliant Federal Reserve" would yield to political pressure and significantly cut interest rates despite inflation risks, leading to a collapse of confidence in the dollar system and subsequently driving gold prices to soar

- Former President Trump has intensified his criticism of Federal Reserve Chair Jerome Powell, threatening to fire him if interest rates are not lowered.  
- Goldman Sachs warns that a loss of independence for the Fed could lead to a crisis of confidence in fiat currency, potentially driving gold prices up to $4,500 per ounce.  
- Analysts caution that attempts to dismiss Powell could destabilize financial markets, with significant risks highlighted by both Treasury Secretary Yellen and Senator Elizabeth Warren.

If Trump really "fires" Powell, what does it mean for the market? Goldman Sachs predicts: if this happens, gold prices will soar to nearly $4,500!