President Donald Trump has made it clear what he wants: lower interest rates, and ASAP.
That’s the thrust behind his yearslong feud with Jerome Powell, the Fed Chair who’s stood pat on interest rates, even amid pointed criticisms and threats from the president that his position is in jeopardy.
Trump — who has, among other things, called Powell “too late,” a “major loser,” and “very stupid” — appeared to signal that he was ready to take his fight with Powell to the next level last week, after the Wall Street Journal reported that the president was considering announcing a new Fed Chair as soon as this fall. If he follows through, that would be well ahead of when Powell’s term ends next May.
It’s unclear if Trump will follow through with that suggestion, but it’s definitely possible — and it could cause a handful of things to shift in markets, investing pros told BI.
Here’s what those market experts think could happen if Trump decides to follow through:
The stock market could immediately rally
If Trump decides to announce a new Fed Chair early, that will likely gel well with stock investors, who have been waiting for lower interest rates for the past several years, according to José Torres, a senior economist at Interactive Brokers.
Trump is more than likely to announce a new central bank chief who’s keen on lowering interest rates, Torres said. That could result in an immediate boost to the S&P 500.
“We have a lot of sectors in the S&P that can really use a lift from lower interest rates,” he said, pointing to rate-sensitive areas of the market, like real estate, industrials, and technology stocks.
Inflation expectations could start to climb
Peter Berezin, the chief market strategist at BCA Research, says markets are still holding onto some fear that lowering rates prematurely will cause inflation to rise.
That’s because investors are still waiting to see the full impact of tariffs, which are thought to raise inflation and slow economic growth.
The five-year inflation average expected five years from now — a measure tracked by the Fed — has trended higher in recent months, reaching 2.27% on June 30. That’s 14 basis points higher than when Trump first announced his Liberation Day tariffs on April 2.
Speaking on a panel in Europe on Tuesday, Powell confirmed that the Fed would have issued another rate cut this year, had it not been for the potential inflationary impact of Trump’s tariffs.
“That’s kind of a key worry for the Fed, that inflation expectations are becoming potentially unanchored,” Berezin added.
Bond yields could spike
Bond investors, who are keeping an eye on inflation dynamics in the US, could stage a sell-off if they don’t trust the new Fed Chair to take inflation seriously, Berezin added.
Higher long-term inflation expectations means the bond market will expect rates to be higher in the long-run, which could cause yields to spike. That would be the exact opposite of what the Trump administration has wanted throughout 2025.
Much of the reaction will depend on how credible the new Fed Chair appears to be, Berezin told BI.
“If it’s Christopher Waller, who’s already on the FOMC, then the market I think would have no problems with that,” Berezin said, noting that Waller already has respect among central bankers and frequently uses economic data to justify his stance on rate cuts.
He added: “But if it’s someone really, really crazy, and more importantly, if it has a negative market reaction, bond yields will go up as a result.”
Trump may not get lower interest rates in the end
The path for interest-rate cuts largely depends on incoming inflation data and how the Fed, as a whole, decides how to respond, Torres and Berezin said.
Trump bringing in a favored Fed Chair is unlikely to sway the trajectory of rate cuts significantly, they added, given that FOMC members need to come to a consensus before deciding to change the interest rate level.
“It’s a very awkward situation. I mean, the way you get things done at the Fed is not by slamming your fist on the table,” Berezin said.
Torres said there was a possibility Trump could continue feuding with the new Fed Chair on rates, if inflation data continued to come in hot.
“It’s difficult to cut even if the president is really pressuring you and he chose you,” Torres said, speculating that the Fed may be able to squeeze in two more rate cuts before inflation could drift past the 2% mark, the Fed’s long-run inflation target.
“There’s a strong possibility the new Chairman is not going to want to cut as fast as the president wants,” he added.
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