Trump's Change Of Heart On Powell Lowers Recession Odds, But Evercore Warns It May Not Last

Markets have stabilized, and near-term recession fears have eased after President Donald Trump said he will not seek to remove Federal Reserve Chair Jerome Powell. However, uncertainty over the long-term outlook remains, according to Evercore ISI’s Krishna Guha.

Guha, head of global policy and central bank strategy at Evercore, warned that Trump may become frustrated with Powell again in the future, potentially reviving calls for his removal. 

“We would not rule out Trump becoming sufficiently enraged at Powell down the line to raise the possibility of firing him again,” Guha said in a client note cited by CNBC.

Looking ahead, Guha believes Powell’s position is safe for now, but with multiple Fed vacancies expected in 2026, Trump will have the opportunity to reshape the central bank. 

Until then, he noted that Powell remains a convenient scapegoat for any economic fallout tied to the trade war. “Trump will likely continue to position Powell to take the blame for any tariff-driven downturn and potential recession, but Powell can live with that,” Guha said.

Markets had dropped sharply on Monday following renewed threats from Trump against the Fed Chair and reports over the weekend from National Economic Council Director Kevin Hassett that the administration was exploring legal options to oust Powell. 

However, Trump reversed course on Tuesday, stating he had “no intention” of removing Powell before the central bank chief’s term ends in May 2026. This unexpected announcement led to a rally on Wall Street, easing some of the market’s recent turmoil.

“This move materially reduces the likelihood of worst-case outcomes, including stagflation or a sovereign debt crisis triggered by the tariff dispute,” Guha wrote in a client note. “But these risks remain.” 

The Invesco QQQ Trust (QQQ), which tracks the Nasdaq 100, rose nearly 3% in Wednesday afternoon trade while the SPDR S&P 500 ETF Trust (SPY) jumped more than 2%. The SPDR Dow Jones Industrial Average ETF (DIA) rose 1.5%.

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Read also: Trump’s Trade War Threatens To Push Global Debt Beyond Pandemic Peak By 2030, IMF Warns

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