U.S. Treasury Secretary Scott Bessent has advised President Donald Trump against removing Federal Reserve Chair Jerome Powell from his position. Bessent’s counsel was based on the potential economic and market risks that could arise from such a move. The Treasury Secretary highlighted that dismissing Powell could lead to higher interest rates and increased borrowing costs for the government, which could have a detrimental impact on the economy. Bessent also pointed out that there are potential legal issues surrounding the dismissal of a Fed chair, which could further complicate the situation.

The advice from the Treasury Secretary comes at a time when the economic indicators are robust, and the market is relatively stable. Removing Powell could disrupt this stability and create uncertainty in the financial markets. The potential legal issues surrounding the dismissal of a Fed chair are also a significant concern. According to the law, a Fed chair can only be removed for cause, which means that there must be a valid reason for the dismissal. This could make it difficult for Trump to remove Powell without facing legal challenges.

Bessent emphasized the strong performance of the economy and the positive market response to current policies. He noted that the Federal Reserve is already considering potential rate cuts, which could help maintain economic stability. Bessent’s advice included avoiding legal complications that could arise from dismissing Powell prematurely. The Treasury Secretary’s more conservative view contrasts with other government officials who are considering more aggressive strategies.

Market responses remain steady amid conversations surrounding potential leadership changes at the Federal Reserve. No major policy changes have been announced yet, which helps maintain stability in financial markets. The potential retention of Powell without disruption could ensure market predictability, reducing risk factors for regulatory responses or drastic technological shifts. Recent history indicates volatile market reactions when Fed chair stability is questioned.

The dismissal of a Fed chair is a rare occurrence and has not happened in over three decades. The last time a Fed chair was removed was in 1937, when President Franklin D. Roosevelt dismissed Marriner Eccles. The dismissal of a Fed chair can have significant implications for the economy and the financial markets. It can lead to higher interest rates, increased borrowing costs, and market volatility. The dismissal of a Fed chair can also erode the independence of the central bank, which is crucial for maintaining economic stability.

The advice from the Treasury Secretary is a reminder of the importance of maintaining the independence of the central bank. The Fed is responsible for setting monetary policy, which is crucial for maintaining economic stability. The dismissal of a Fed chair can undermine this independence and create uncertainty in the financial markets. The advice from the Treasury Secretary is a call for caution and a reminder of the potential risks associated with removing a Fed chair.

President Donald Trump’s feud with Federal Reserve Chair Jerome Powell isn’t new. For months, the president has criticized the Fed chair, whom he appointed to the role in 2017, for refusing to lower interest rates. Since Trump entered the White House in January, he has repeatedly called on Powell to step down amid disagreements over rate cuts.

Learn More: 13 Cheap Cryptocurrencies With the Highest Potential Upside for You

Find Out: 3 Reasons Retired Boomers Shouldn’t Give Their Kids a Living Inheritance (And 2 Reasons They Should)

However, Trump has denied that he plans to fire Powell, saying, “I think it’s highly unlikely, unless he has to leave for fraud.”

Despite reassurances, this kind of political interference could impact financial markets, including crypto.

Here’s what crypto investors need to know if Trump changes his mind and fires Powell.

Increased Volatility in Crypto Markets

Reports of Powell’s firing have already sent shockwaves through markets. U.S. Treasury two-year yields dropped sharply after a report that the president is likely to fire the Fed chair. Crypto markets, known for their extreme sensitivity to Fed policy signals, would likely experience even more volatility.

Historically, crypto thrives on uncertainty, but only to a point. Since Trump’s Nov. 6 victory, Bitcoin and other cryptocurrencies have surged dramatically. A sudden firing of the Fed chair could trigger risk-on, risk-off behavior from investors. Some might jump into crypto as a hedge, while others might sell amid fears of broader market chaos.

Possible Drop in Interest Rates Could Fuel Crypto Prices

Interest rates are one of the biggest tools the Fed has, and Powell’s removal would create unprecedented uncertainty around monetary policy direction.

Trump has been crystal clear about his demands: he wants the Fed to slash rates by up to three percentage points from the current 4.25%-4.5% range. A new Fed chair aligned with Trump’s vision would likely pursue more aggressive rate cuts than Powell’s approach.

Lower interest rates could mean higher prices for cryptocurrencies, as investors flee low-yield traditional assets like traditional savings and bonds for higher-risk, higher-reward alternatives like crypto. If this happens, Bitcoin and other altcoins could see significant price surges, at least in the short term.

Regulatory Approach Could Shift

Powell’s potential removal isn’t just about interest rates. It’s about the entire regulatory framework surrounding digital assets. The current Fed leadership has maintained a cautious but increasingly open stance toward crypto regulation, with Powell also suggesting that crypto stablecoins “may have a big future,” and he supports work on regulation for them.

A Trump-appointed Fed chair replacement would likely accelerate crypto-friendly policies, potentially removing regulatory barriers that have constrained institutional adoption. The Federal Reserve Board recently announced the withdrawal of guidance for banks related to their crypto-asset and dollar token activities, signaling a trend toward deregulation that could intensify under new leadership.

This regulatory shift could benefit crypto markets. Looser regulations could mean more institutional adoption.

More From GOBankingRates

This article originally appeared on GOBankingRates.com: Here’s What Could Happen to Cryptocurrency if Trump Fires Jerome Powell

U.S. President Donald Trump looks on as Jerome Powell, his nominee to become chairman of the U.S. Federal Reserve, speaks at the White House in Washington, U.S., November 2, 2017. REUTERS/Carlos Barria/File Photo

As Donald Trump openly toys with firing Federal Reserve Chair Jerome Powell — despite having appointed him — Republicans and Democrats are sharply divided over whether the president has the authority or wisdom to do so. Rep. Doug LaMalfa (R‑CA) admitted he’s “not a super‑duper financial expert” but said Powell’s approach to interest rates frustrates him, while Sen. Bernie Moreno (R‑OH) declared Powell “absolutely needs to go.” Economists and Democrats warn that meddling with the Fed could spark chaos, inflation, and a Wall Street meltdown, but Trump allies argue that Powell’s policies have hurt the economy and that precedent gives the president wide latitude to act.

Read the full story here or watch the video below.

GOP split as Trump toys with firing Fed chair Powell, sparking chaos, fears

Want more breaking political news? Click for the latest headlines at Raw Story.

President Donald Trump, accompanied by Turkish President Recep Tayyip Erdogan, speaks in the Roosevelt Room of the White House in Washington Tuesday, May 16, 2017.

President Donald Trump, accompanied by Turkish President Recep Tayyip Erdogan, speaks in the Roosevelt Room of the White House in Washington Tuesday, May 16, 2017. Evan Vucci/AP

President Donald Trump, accompanied by Turkish President Recep Tayyip Erdogan, speaks in the Roosevelt Room of the White House in Washington Tuesday, May 16, 2017. Evan Vucci/AP

This story is available exclusively to Business Insider subscribers. Become an Insider and start reading now.

Investors have been dismayed by Donald Trump’s attacks Fed chief Jerome Powell this year.

The idea is seen as destabilizing for markets, which rely on the faith that the central bank will act based on its own observations about the economy rather than bend to political pressure.

Earlier this week, analysts at Deutsche Bank said the possibility that Trump fires Powell before his term is up in 2026 is the most underappreciated risk in the market right now, likely to spark big sell-offs in bonds and the dollar.

Others have since echoed that.

“I also think that a firing would be the worst, but even a resignation that the market thought that he could be cajoled into giving up early, there would be a negative market reaction both in equity and fixed income.” Edward Mills, managing director and Washington policy analyst at Raymond James, told Business Insider.

To understand the wider implications of political meddling with central bank policy, there’s an ongoing example to point to: Turkey.

The country has seen astronomical inflation over the last few years, reaching as high as 85% in 2022. Inflationary pressures have since dropped, but consumer prices in Turkey are still up by about 35% over the last year.

Related stories Business Insider tells the innovative stories you want to know Business Insider tells the innovative stories you want to know

Turkey’s president, Recep Tayyip Erdoğan, moved to take control of the Central Bank of the Republic of Turkey in 2018. He has since fired five of the bank’s leaders—all of whom he appointed—and has generally called for keeping interest rates low, though the bank went on a hiking spree in 2023, raising rates from 8.5% as high as 50%.

Today, the country’s benchmark short-term lending rate is 45%.

Dominic Pappalardo, chief multi-asset strategist at Morningstar Wealth, said that while it’s unlikely the US would see inflation at levels similar to Turkey, the situation should be a warning to the administration that Fed independence is important.

“I certainly think there are lessons to be learned there that the administration should be aware of,” Pappalardo said. “Perhaps somebody should be reminding President Trump of the direction things can go should he overpower Powell or the Fed or the checks and balances.”

In addition to Turkey, there are a couple of other examples of political influence on monetary policy gone wrong that are cautionary tales for the Trump administration, said Lukasz Tomicki, founder and managing partner at LRT Capital Management.

“Turkey, Argentina (until the most recent administration) and Venezuela are poignant examples of what happens when the central bank is subordinated to the executive,” he said in an email.

“Without the restraints of a politically independent central bank, politicians will always run substantial deficits. Once deficits become chronic, central banks are usually called in to buy unlimited amounts of government bonds, which inevitably leads to high and accelerating inflation.”

Central banks rely on consumer and investor confidence to make effective policy changes. Credibility is key, and if there’s a sense that the bank’s leadership and policy decisions are unstable, the public may become more worried about inflation and start baking higher prices into their outlook for the economy, creating an inflation spiral.

If Trump were to fire Powell, there’s a risk of inflation rearing its head again, said Doug Peta, chief US investment strategist at BCA Research.

“I think it would undermine confidence in the Fed’s independence, and therefore it would likely lead investors to expect a little bit more inflation going forward,” he said.

Raymond James’ Mills also said he thought the ultimate result of firing Powell could have the opposite effect Trump wants.

“To me, part of what I don’t understand about the strategy is the fact that you could have a situation where if he gets the outcome on personnel that he wants, that he could have the exact opposite impact on rate that he wants,” Mills said.

That’s because the bond market response would likely be negative, with investors selling US Treasurys and sending yields higher. Treasury yields influence all kinds of lending, from mortgages to corporate loans, so even if Trump gets a more compliant Fed chief who is eager to cut rates, borrowing costs might not come down.

Amid the post-pandemic inflation surge in 2021 and 2022, Powell and the Fed rapidly hiked interest rates, walking a tight rope between fighting inflation and preventing the labor market from weakening substantially. So far, he has achieved those goals, with inflation under 3% and the unemployment rate at 4.1%.

Trump’s tariffs have complicated things, however. The import taxes threaten to raise consumer prices, leading Powell to pause the rate-cut cycle he had started last year. The wait-and-see approach has angered Trump, who worries higher interest rates could spark a recession.

Treasury Secretary Scott Bessent has privately advised President Donald Trump against dismissing Federal Reserve Chairman Jerome Powell before Powell’s term ends in May next year. This advice comes as the Federal Reserve has indicated potential interest rate cuts this year, which could provide much-needed macroeconomic adjustments without the disruption of leadership changes.

Bessent’s counsel reflects concerns over potential economic disruption and legal challenges. He emphasized the stability in current U.S. economic conditions and the positive market responses to existing policies. His warnings against Powell’s dismissal were primarily aimed at avoiding political turmoil and maintaining an optimistic market outlook in anticipation of the electoral cycle. Bessent noted that if Powell were removed, legal complications could arise, affecting political dynamics and economic perceptions.

Historically, such actions have led to market fluctuations tied to leadership volatility. For instance, Richard Nixon’s pressure on Fed Chair Arthur Burns in 1971 caused significant market instability. The current economic indicators suggest that maintaining stability in legislative and regulatory environments could bolster investor confidence. Markets tend to favor predictable leadership in financial institutions, recognizing potential innovations in monetary policy adaptations if Powell stays through his term.

Despite Bessent’s warnings, other top Trump officials are intensifying attacks on Powell. Russell Vought, Director of the White House Office of Management and Budget, has accused Powell of ‘gross mismanagement,’ particularly targeting the Fed’s $2.5 billion renovation project. Vought demanded answers from Powell about the cost overruns and scope of the Fed’s headquarters revamp. Powell, in response, emphasized transparency and accountability in a written reply: “The Board believes it is of the utmost importance to provide transparency for our decisions and to be accountable to the public,” Powell wrote.

Firing a Fed chair before their term ends is unprecedented in U.S. history. Legal experts suggest it could spark a constitutional clash that may ultimately be decided by the Supreme Court. Under the Federal Reserve Act, the chair serves a four-year term, and any attempt to remove Powell prematurely would likely be challenged in court. Bessent also warned Trump about legal risks and potential political backlash from the Republican Party, further complicating the situation.