Trump vs Powell: Unlikely Winner Revealed in Secret Battle for Wall Street Control
Volatility Reigns Supreme on Wall Street as Trump and Powell Engage in High-Stakes Battle
The S&P 500, Nasdaq Composite, and Dow Jones Industrial Average have been experiencing heightened volatility in 2025, largely due to the ongoing feud between President Donald Trump and Federal Reserve Chair Jerome Powell. The battle between these two influential figures has captured the attention of investors worldwide, with many speculating about the potential outcome.
Trump’s Tariff Policy Sends Markets into a Tailspin
The first week of April witnessed uncertainty reaching its crescendo as President Trump announced his tariff and trade policy. This move sent shockwaves through the markets, leading to the S&P 500 experiencing its fifth-steepest two-day percentage decline since 1950. The Dow Jones Industrial Average and Nasdaq Composite also suffered significantly, with both indexes entering correction territory and a bear market, respectively.
However, following President Trump’s decision to pause higher "reciprocal tariffs" on select countries, the markets experienced an impressive rebound. For only the sixth time in its history, the S&P 500 gained at least 25% in a three-month period. Despite this recovery, all eyes remain fixed on the ongoing battle between Trump and Powell.
Can Fed Chair Jerome Powell be Fired?
Interest rates are at the heart of the conflict between these two key figures. When the U.S. money supply skyrocketed during the COVID-19 pandemic, it sparked the highest prevailing rate of inflation in four decades. In response, the Federal Reserve undertook its most-aggressive rate-hiking cycle in decades from March 2022 to July 2023.
The Fed’s goal is to cool down the prevailing rate of inflation by adjusting the fed funds rate. However, during tightening cycles, the central bank typically increases the fed funds rate to combat rising prices. In contrast, it tends to lower the fed funds rate during economic downturns or shock events to encourage borrowing and stimulate growth.
The Federal Reserve Act of 1913: A Key Factor in Determining Powell’s Fate
Although the Federal Reserve Act of 1913 allows members of its Board of Governors to be "removed for cause by the president," there is no clear definition of what constitutes "cause." This ambiguity has led many to speculate about Trump’s chances of removing Powell from office.
A recent Supreme Court ruling suggests that America’s highest court views members of the Board of Governors as having unique protections. The ruling notes, "The Federal Reserve is a uniquely structured, quasi-private entity that follows in the distinct historical tradition of the First and Second Banks of the United States." This implies that without justifiable cause, Trump has little chance of removing Powell from office prior to the end of his four-year term as Fed Chair in May 2026.
The June Inflation Report: A Turning Point in the Battle Between Trump and Powell
While all eyes are on interest rates, the foundation of this rivalry between Donald Trump and Jerome Powell boils down to inflation. The key inflationary measure is the Consumer Price Index for All Urban Consumers (CPI-U), which takes into account more than 200 specific spending categories.
The June inflation report from the U.S. Bureau of Labor Statistics revealed that the prevailing rate of inflation has come way down from a peak of 9.1% on a trailing-12-month basis in 2022 but still remains above the central bank’s long-term target of 2%. More importantly, inflation appears to be reaccelerating due to the implementation of Donald Trump’s tariff and trade policy.
Trump’s Tariff Policy: A Potential Inflationary Driver
Following President Trump’s announcement of a 10% base global tariff, as well as reciprocal tariffs on dozens of countries with adverse trade imbalances with America, there has been a lag in determining whether these tariffs are having an inflationary impact. However, the June inflation report strongly suggests that Trump’s tariff and trade policy is providing upward pressure on prices.
Between May 2025 and June 2025, the trailing-12-month CPI-U inflation rate jumped by 32 basis points to 2.67%. Core inflation, which excludes volatile food and energy costs, climbed to 2.9%, representing the fastest uptick in core inflation since February 2025.
The Narrative Investors Should Be Monitoring
While investors have been fixated on the potential for interest rates to hinder corporate growth, the narrative that should be monitored is whether Trump’s tariffs will adversely impact corporate hiring, labor productivity, sales, and profits. As seen during the president’s tariff implementation on China in 2018-2019, this could lead to a significant slowdown in economic activity.
With more businesses citing tariff-related uncertainty in their sale and profit forecasts, it becomes clear that attention needs to be paid to the inflationary impact of Trump’s tariff policy on Wall Street’s most influential companies.
