Sell the dollar and bonds: BofA advised strategies in case Powell is fired

Bank of America has named the best investment strategies in case US President Donald Trump fires Federal Reserve chief Jerome Powell. His resignation may provoke turmoil in global markets, so investors and analysts are closely watching the developing situation. 

According to BofA strategist Michael Hartnett's view, if the U.S. Federal Reserve changes chair in the coming months and the regulator starts cutting rates with no signs of recession, investors will need to follow the following strategies:

- Open short positions on the U.S. dollar, as the national currency will weaken. Earlier, Deutsche Bank warned that the first alarming signal in case of Powell's resignation will be a sharp drop in the dollar exchange rate, in the first day it can fall by at least 3-4%.

- Buy gold and cryptocurrencies as protective assets against stock market fluctuations.

- Sell 30-year U.S. Treasuries, as a BofA strategist expects them to fall in the event of a rate cut amid economic growth rather than recession. A Deutsche Bank analyst also said that if Powell is fired, treasury yields would rise by 30-40 basis points, especially on long-dated paper. 

- Buying large U.S. tech stocks and value stocks in European and emerging markets at the same time is how Hartnett suggests defending against a U.S. asset bubble.

A Bank of America strategist explained why Trump is so insistent that the Fed cut rates. According to him, annual U.S. budget expenditures reach $7 trillion, but it is impossible to reduce mandatory spending by $4 trillion, and the president has abandoned ideas to cut $1 trillion in discretionary and $1 trillion in defense spending.

The American leader's pressure on the Federal Reserve to soften the policy is not a new situation: for example, George Bush Sr. accused Alan Greenspan of losing the election precisely because of slow rate cuts, CNBC recalls. However, such an open onslaught as now has never been seen before, the channel emphasizes.

The standoff between Trump and Powell has escalated this week, with Bloomberg reporting on July 16 that the White House had discussed the possibility of firing the Fed chief with lawmakers, and The New York Times writing that the president had even drafted a letter to that effect. Trump said almost immediately that Powell's ouster was highly unlikely, unless he had to leave because of fraud. In recent days, Trump himself and other White House officials have publicly criticized the Fed chief for the $2.5 billion project to renovate the regulator's headquarters.

Nevertheless, so far the stock market remains stable, notes CNBC. Thus, on Thursday, the main U.S. stock index S&P 500 again closed at a record level. According to Bank of America, the bank's clients invested $4.8 billion in stocks over the last week. 

If Wednesday's moderate decline following reports of Powell's possible firing was a test of sorts of the markets' reaction, "it's not enough to dissuade Trump from firing Powell," considers Macquarie Group's currency and rates strategist Thierry Wiseman. He predicts that in case of a real resignation, investors may act ambiguously: on one hand, a sell-off of shares is possible, on the other hand, some market participants may take the reduction in rates, especially short-term rates, as a positive signal.  

Markets now estimate the likelihood that Trump will fire Powell by the end of the year at 21%, according to data from Polymarket. His term expires in May 2026. According to sources The Washington Post, Kevin Hassett, head of the National Economic Council in the Trump administration, is the top contender to be the next Fed chairman. Also among the favorites is ex-Morgan Stanley top executive and former member of the Fed's Board of Governors Kevin Warsh.

This article was AI-translated and verified by a human editor