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President Donald Trump has lobbed a series of threats and criticisms at Federal Reserve Chair Jerome Powell this year
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President Trump has repeatedly attacked Federal Reserve Chair Jerome Powell this year, even suggesting he could fire him.
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A new study links prediction markets and stock prices to estimate the potential market fallout if Powell were fired.
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Researchers focused on a two-hour window on July 16, between the initial reports suggesting Powell might be fired and Trump’s eventual denial of those reports.
Firing Federal Reserve Chair Jerome Powell could wipe as much as $1.5 trillion from the stock market, according to new research linking President Donald Trump’s threats to fire Powell to real-time market losses. Babson College researchers came up with the figure after studying prediction and stock market moves from July 16, 2025.
Just before 11 a.m. on July 16, reports emerged that Trump had shown Republicans a letter justifying Powell’s firing—reports Trump later denied. In the two hours between the report and the denial, stocks dropped sharply as prediction markets like Polymarket and Kalshi priced in higher odds of Powell being removed.
A research paper published Thursday by Jérôme Taillard and Linghang Zeng of Babson College analyzed how the rising odds of Powell’s firing affected stock prices. They used that two-hour window to estimate the broader impact his dismissal could have on stocks, bonds, and the dollar.
Odds on whether Powell would be out as Fed Chair before the end of the year from Polymarket and Kalshi entered July 16 around 25%, per the study. (As of Monday, Polymarket and Kalshi odds on Powell’s dismissal are at 6% and 9%, respectively.)
The odds of Powell being fired rose from about 25% to 40% in just 90 minutes after reports of a dismissal letter surfaced, according to the study. They dropped back to the mid-20s after Trump said it was “highly unlikely” he’d fire Powell.
As those odds peaked, the markets tumbled. The researchers analyzed the movements of the SPY exchange-traded fund (ETF), which tracks the performance of the S&P 500. As Polymarket’s odds moved from 23% to 40%, the SPY ETF saw spikes in trading volume usually only found when markets open or close, 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 activity to estimate that the S&P 500, the index that tracks 500 of the biggest companies in the U.S., lost between $125 billion and $214 billion as the probability of Powell’s firing shifted by 17%, while the stock market at large lost $150 billion to $256 billion in value.
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Extrapolating that impact over a hypothetical scenario in which the odds of Powell’s firing go from 0% to 100%, the researchers estimated that the market could lose between $880 billion and $1.51 trillion if Powell were fired.
The researchers noted that stocks have risen in the past when presidents, including Trump, have simply encouraged the Fed to take actions such as lowering interest rates. However, Trump’s attacks on Powell this year have been more public than previous decades of political pressure on the Fed, leading to pushback from economists and financial executives.
The researchers said Trump’s “escalation from rhetorical pressure to the prospect of dismissal shifted the balance of forces,” with markets being more concerned about the credibility and higher risk associated with Powell’s firing than the prospect of near-term interest rate cuts.
A new paper estimates that firing Fed Chair Jerome Powell could erase $880 billion to $1.5 trillion from markets, based on a two-hour window when reports of his possible dismissal sent stocks tumbling this past July.
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