Key Takeaways
- President Trump has repeatedly attacked Federal Reserve Chair Jerome Powell this yr, even suggesting he might fireplace him.
- A brand new research hyperlinks prediction markets and inventory costs to estimate the potential market fallout if Powell had been fired.
- Researchers targeted on a two-hour window on July 16, between the preliminary experiences suggesting Powell could be fired and Trump’s eventual denial of these experiences.
Firing Federal Reserve Chair Jerome Powell might wipe as a lot as $1.5 trillion from the inventory market, in line with new analysis linking President Donald Trump’s threats to fireplace Powell to real-time market losses. Babson School researchers got here up with the determine after finding out prediction and inventory market strikes from July 16, 2025.
What Occurred on July 16?
Simply earlier than 11 a.m. on July 16, experiences emerged that Trump had proven Republicans a letter justifying Powell’s firing—experiences Trump later denied. Within the two hours between the report and the denial, shares dropped sharply as prediction markets like Polymarket and Kalshi priced in greater odds of Powell being eliminated.
A analysis paper revealed Thursday by Jérôme Taillard and Linghang Zeng of Babson School analyzed how the rising odds of Powell’s firing affected inventory costs. They used that two-hour window to estimate the broader influence his dismissal might have on shares, bonds, and the greenback.
Odds on whether or not Powell could be out as Fed Chair earlier than the tip of the yr from Polymarket and Kalshi entered July 16 round 25%, per the research. (As of Monday, Polymarket and Kalshi odds on Powell’s dismissal are at 6% and 9%, respectively.)
The percentages of Powell being fired rose from about 25% to 40% in simply 90 minutes after experiences of a dismissal letter surfaced, in line with the research. They dropped again to the mid-20s after Trump mentioned it was “extremely unlikely” he’d fireplace Powell.
How and Why Markets Might Be Impacted By a Powell Firing
As these odds peaked, the markets tumbled. The researchers analyzed the actions of the SPY exchange-traded fund (ETF), which tracks the efficiency of the S&P 500. As Polymarket’s odds moved from 23% to 40%, the SPY ETF noticed spikes in buying and selling quantity often solely discovered when markets open or shut, the researchers wrote.
The ETF fell from $623 to $619.82 between 10:30 a.m. and 11:33 a.m., the paper notes. The researchers used that exercise to estimate that the S&P 500, the index that tracks 500 of the most important corporations within the U.S., misplaced between $125 billion and $214 billion because the chance of Powell’s firing shifted by 17%, whereas the inventory market at massive misplaced $150 billion to $256 billion in worth.
Extrapolating that influence over a hypothetical situation by which the percentages of Powell’s firing go from 0% to 100%, the researchers estimated that the market might lose between $880 billion and $1.51 trillion if Powell had been fired.
The researchers famous that shares have risen previously when presidents, together with Trump, have merely inspired the Fed to take actions resembling decreasing rates of interest. Nonetheless, Trump’s assaults on Powell this yr have been extra public than earlier a long time of political strain on the Fed, resulting in pushback from economists and monetary executives.
The researchers mentioned Trump’s “escalation from rhetorical strain to the prospect of dismissal shifted the steadiness of forces,” with markets being extra involved concerning the credibility and better threat related to Powell’s firing than the prospect of near-term rate of interest cuts.
The Backside Line
A brand new paper estimates that firing Fed Chair Jerome Powell might erase $880 billion to $1.5 trillion from markets, based mostly on a two-hour window when experiences of his attainable dismissal despatched shares tumbling this previous July.
