Some said that they were starting to expect more longshot scenarios coming to fruition after the Trump administration’s tariff policies were announced far harsher than expected, causing significant volatility in asset prices. Since the April 2 tariffs announcement, the S&P 500 has fallen 9%.

“Previously I thought the odds were very much against Trump trying to remove Powell, but my confidence has faded,” Christopher Hodge, chief U.S. economist at Natixis, said in a note following the president’s comment.

Such a move would likely hit asset prices widely, strategists said.

Andrew Graham, managing partner of Jackson Square Capital, estimates that the S&P 500 index would fall below 4,835 – a roughly 6% fall from its Monday close.

Jack Ablin, chief investment officer at Cresset Capital in Chicago, said if the president installs his own person at the Fed and the central bank lowers rates against a backdrop of rising inflation “we’d see a continuation of what we’re experiencing now.”

“Unfortunately, both stocks and the dollar are overvalued, which gives them room to fall more in this environment,” said Ablin, who thinks that the S&P 500 is 10% to 15% overvalued. Through Friday, the S&P 500 was trading at 19.2 times forward 12-month earnings estimates, compared with its long-term average of 15.8, according to LSEG Datastream.

Brian Jacobsen, chief economist at Annex Wealth Management, said firing the head of the Fed would not “build confidence in the U.S. dollar.”

Nate Garrison, chief investment officer, World Investment Advisors, praised Powell’s track record at the Fed as being consistent and a steady hand.

“Just the threat of removing him sends a bit of a shudder up people’s spines,” said Garrison.

REPLACEMENT TO POWELL

Trump’s outspoken criticism of Powell has a long history. In 2019, the president called the Fed chair “an enemy.” But last year, following his election, he said he would not try to replace Powell.

Powell himself has said he has no plans to vacate the job before his term ends in May of next year, while also arguing that the central bank would wait for more data on the economy’s direction before changing interest rates, as tariffs could push inflation higher.

Trump could replace Powell with former Fed Governor Kevin Warsh, the Wall Street Journal reported last week. Warsh for his part, however, has advised that the Fed chair should conclude his term, the report added. Warsh did not immediately respond to a Reuters request for comments.

Capital Economics said if a well-qualified candidate is lined up, such as Warsh, then the initial market reaction “might not be disastrous” although it would likely be “the first step in dismantling the Fed’s independence” as if it led to the remaining Fed board members being fired, that would “trigger a more severe market backlash.”

Some market participants consider an easier route for Trump would be to create a so-called shadow Fed chair, or someone investors would look to for guidance as opposed to Powell.

However, that could also be viewed negatively by the market.

“If it looks like we might have looser financial policy because we have a new Fed chair coming in, that would be a disaster,” said Tom Bruce, macro investment strategist, Tanglewood Total Wealth Management.

(Reporting by Carolina Mandl and Davide Barbuscia, in New York, additional reporting by Suzanne McGee, Lisa Pauline Mattackal, Saqib Iqbal Ahmed and Saeed Azhar; editing by Megan Davies and Marguerita Choy)