The Federal Reserve's concept of independent operation is facing unprecedented challenges, and Trump's continued pressure on Powell is prompting a reassessment of the central bank's policy outlook in the market. However, JP Morgan believes that the market need not be overly concerned.
Ilan Benhamou from JP Morgan's equity derivatives sales team stated in a recent report to clients, &#34;For decades, the Federal Reserve has operated under political pressure, and this is not an exception during Trump's era. The bank believes that whether Powell is fired is not important; what matters is that Powell's term is nearing its end. Regardless of who the next chairman is, the influence of doves will grow, and U.S. stocks may continue to rise under the expectation of interest rate cuts. The market has begun to price in the policies of the next chairman.&#34;
Trump's pressure on Federal Reserve Chairman Powell has drawn market attention. Wall Street Insight mentioned earlier that on Wednesday, Trump drafted a letter to dismiss Powell. Following the news, U.S. stocks and the dollar plummeted. However, less than an hour later, Trump denied this possibility, stating that he does not intend to dismiss Federal Reserve Chairman Powell but still hinted that &#34;just cause&#34; could be feasible. The market then reversed its previous trend.
This incident once again brings the issue of the Federal Reserve's independence into the spotlight. Analysts warn that if Trump really dismisses Powell, it would trigger turmoil in the financial markets and lead to serious legal battles. This unprecedented action could ultimately require a ruling from the U.S. Supreme Court.
JP Morgan believes that investors should continue to go long on the S&amp;P 500 index and the VIX index, expecting that investors will allocate more funds to risk assets such as cryptocurrencies and artificial intelligence, while uncertainties regarding tariffs, inflation, and Federal Reserve policies will exacerbate market volatility. As Powell's term approaches its end, investors will begin to focus on the policy tendencies of the next Federal Reserve chairman.
<h2>Political interference is not a new phenomenon; the independence of the Federal Reserve is a &#34;myth&#34;</h2>
Ilan Benhamou from JP Morgan's equity derivatives sales team wrote in a recent report to clients, &#34;The situation unfolding before us has been happening behind closed doors for decades.&#34;
He cited the precedent of former U.S. President Johnson clashing with then-Federal Reserve Chairman Bill Martin in 1965. At that time, Johnson summoned Martin and other Federal Reserve officials to his Texas ranch, complaining that interest rate hikes would hurt the economy. Despite Johnson's pressure, Martin refused to yield.
Benhamou stated, &#34;The situation visible to everyone does indeed harm the institution, but frankly, the independence of the Federal Reserve is a myth.&#34;
According to a previous article by Wall Street Insight, the leaders of the four major Wall Street giants—JP Morgan's Jamie Dimon, Goldman Sachs' Solomon, Bank of America's Moynihan, and Citigroup's Fraser—have successively expressed support for the Federal Reserve to operate independently without White House or political interference, emphasizing that defending the independence of the Federal Reserve is crucial for the stability of the U.S. economy and financial system
<h2>The Dovish Forces Are Growing Stronger, U.S. Stocks May Continue to Rise Under Rate Cut Expectations</h2>
Benhamou stated, &#34;I don't think Powell will actually be fired, but at this point, it doesn't matter because the market will soon realize that he is effectively out and start pricing in the policies of the next chairman.&#34;
Changes in Federal Reserve policy require the support of a majority of the Federal Open Market Committee, and any new chairman must persuade colleagues to support rate cuts. Interest rate forecasts show that decision-makers have differing views on the prospects for rate cuts for the remainder of this year, primarily due to differing opinions on how Trump's tariffs affect inflation.
&#34;Whether it's Hassett, Waller, or Walsh, there's no doubt that the dovish race will only intensify,&#34; Benhamou said. He expects that &#34;complacency will continue to build without undermining the upward trend.&#34;
<h2>Legal Consequences of Firing Powell</h2>
If Trump were to fire Powell, it would be the first time in U.S. history and would almost certainly trigger a landmark lawsuit ultimately decided by the Supreme Court.
A previous article from Wall Street Insight mentioned that Section 10 of the Federal Reserve Act states that members of the Federal Reserve Board (the chairman being one of them) can be &#34;removed for cause.&#34; Trump and his allies have pointed to the cost overruns of the Federal Reserve headquarters renovation as a potential &#34;cause&#34; for firing Powell.
The dismissal would take effect immediately, but Powell could immediately sue and seek an injunction to restore his position. If the injunction is denied, the dismissal remains in effect, and Vice Chairman Philip Jefferson would serve as acting chairman. Jefferson was nominated to the Federal Reserve Board by Biden in 2022.
<h2>The Supreme Court's Stance: Trump Has a Clear Advantage</h2>
In May, the Supreme Court stated that Trump cannot fire Powell without cause, calling the Federal Reserve a &#34;structurally unique quasi-private entity.&#34; However, the ruling leaves open the possibility for &#34;for cause&#34; dismissal.
Jed Shugerman, a law professor at Boston University, noted that the conservative-majority Supreme Court has repeatedly refused to question Trump's judgment, granting the president broad criminal immunity last year and approving the execution of a series of legally challenged policies this year. &#34;They are paving the way for Trump,&#34; he said.
Jonathan Shaub from the University of Kentucky College of Law pointed out that even if the court finds the dismissal unlawful, it remains unclear whether Powell can keep his position. The Supreme Court has narrowed the authority of federal judges to provide &#34;equitable relief,&#34; and Justice Neil Gorsuch has previously indicated that it is not appropriate for the court to restore senior officials to their positions

JP Morgan stated that pressure on the Federal Reserve has been occurring behind closed doors for decades, not just during the Trump era. Whether Powell is fired is not important; what matters is that Powell's term is about to expire, and the market will soon realize that he is effectively out and begin pricing in the policies of the next chairman. Regardless of who the next chairman is, the influence of the doves will grow, and U.S. stocks may continue to rise under expectations of interest rate cuts

- The Federal Reserve's independence is facing unprecedented challenges due to Trump's pressure on Chairman Powell, prompting market reassessments of central bank policies.  
- JPMorgan's Ilan Benhamou argues that political pressure on the Fed is not new, and regardless of Powell's fate, the market is pricing in a more dovish future under the next chair.  
- If Trump were to dismiss Powell, it could lead to significant market turmoil and legal battles, potentially requiring a Supreme Court ruling on the matter.

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JP Morgan: Don't worry too much about Powell, the independence of the Federal Reserve has always been a "myth," and with interest rate cut bets, U.S. stocks will continue to rise