Trump adviser calls for Powell exit, could Bitcoin benefit?

President Donald Trump’s chief economic adviser has called for former Federal Reserve Chair Jerome Powell to leave the central bank’s board, opening another debate over the Fed’s policy direction weeks after officials raised interest rates for the first time in three years.

According to Bloomberg, National Economic Council Director Kevin Hassett said on Fox News’ Sunday Morning Futures that it was time for Powell to “move on” after an internal watchdog report found management problems tied to the renovation of the Federal Reserve’s Washington headquarters.

“I think that it’s time for him to move on and to respect the independence of the Fed,” Hassett said when asked whether Powell should resign.

President Trump separately called for Powell to be “forced to resign from the Board” following the report, continuing pressure on the former chair after repeatedly pushing the central bank to lower borrowing costs during Powell’s tenure.

For Bitcoin, Powell’s position matters because he remains a member of the Federal Open Market Committee even after Kevin Warsh replaced him as Fed chair in May. A departure would create a vacancy on the seven member Board of Governors that Trump could nominate someone to fill, subject to Senate confirmation.

Any effect on Bitcoin would depend less on Powell leaving by itself and more on whether his eventual replacement changes expectations for where interest rates go next.

Powell remains a vote on Fed interest rate decisions

Powell stayed on the Board of Governors after his term as chair ended in May, breaking with the usual practice of former Fed chairs leaving the central bank after handing over its leadership.

His continued presence means Powell retains a vote on monetary policy. The Fed currently lists him among the 12 voting members of the FOMC alongside Warsh and other governors and regional Fed presidents.

If Powell resigns before his term as governor expires, Trump would be able to nominate a successor to serve the remaining portion of the term. Senate confirmation would be required before the nominee could take the seat.

The personnel question comes less than three weeks after the FOMC unanimously raised the federal funds target range by 25 basis points to 3.75% to 4% on Sept. 16.

Hassett told Fox News that he disagreed with the decision but respected Warsh for making it for what he considered the right reasons.

Bitcoin initially struggled around the September meeting before recovering. As crypto.news previously reported, BTC eventually climbed past $87,000 after the hike as spot Bitcoin ETF demand returned and corporate purchases provided another source of buying.

U.S. spot Bitcoin ETFs lost $746.3 million across Sept. 15 and Sept. 16 before recording roughly $2.65 billion of net inflows during the five sessions through Sept. 23. Strategy bought another 950 BTC for $75.7 million between Sept. 14 and Sept. 20.

Bitcoin’s recovery did not remove the rate risk. A second Fed hike was identified by HashKey Group senior researcher Tim Sun as a bigger threat to BTC than delays to the CLARITY Act, with Treasury yields, ETF flows and derivatives leverage among the factors he was watching.

Could Powell leaving the Fed benefit Bitcoin?

Powell’s departure alone would not guarantee lower interest rates or provide an immediate liquidity boost for Bitcoin.

Trump would first have to nominate a replacement, and that person would need Senate confirmation. The eventual effect would depend on the new governor’s monetary policy stance and how their addition changes voting within the FOMC.

Trump has repeatedly favored lower borrowing costs, while Warsh and the rest of the FOMC backed September’s rate increase as inflation remained above the central bank’s 2% target.

Rate expectations have moved in Bitcoin’s favor since then without any change to the Fed’s membership.

Federal Reserve Vice Chair Philip Jefferson said last week that policymakers may need more time before deciding on another rate move, while New York Fed President John Williams indicated another hike could still be needed but was not urgent.

Markets subsequently cut expectations for an October rate increase. The probability of another hike this month had fallen to around 18% by Oct. 5, while traders continued to price a much higher chance of an increase in December.

Bitcoin responded to the softer October outlook. BTC briefly crossed $87,000 on Oct. 2 after September nonfarm payrolls rose by only 29,000, well below forecasts, strengthening expectations that policymakers could pause rate hikes at their Oct. 27 to Oct. 28 meeting.

The cryptocurrency was trading near $86,000 over the weekend after closing Sept. 30 around $83,600.

Past price action this year has repeatedly shown Bitcoin reacting to changes in the expected path of Fed policy. In July, BTC climbed above $65,000 after weaker producer inflation reduced expectations for another rate increase, while Warsh’s more hawkish signals have previously put pressure on the cryptocurrency.

Treasury yields remain a hurdle for Bitcoin

A more dovish Fed outlook could help Bitcoin if it brings Treasury yields lower and reduces the return available on interest bearing assets, but the bond market has not fully followed the decline in October rate hike expectations.

U.S. Treasury yields remained high entering the new week, while the dollar strengthened despite September’s weak employment report.

Long term yields have been particularly stubborn. The 10 year Treasury yield recently moved above 5.3%, keeping financial conditions tight even as investors became less convinced that the Fed would raise rates again in October.

High yields have remained one of the main macro pressures facing Bitcoin. Investors can earn larger returns from government debt without taking the volatility associated with crypto, while rising yields can tighten financial conditions across risk assets.

Bitcoin has still shown that demand can offset part of that pressure. The cryptocurrency’s recovery following September’s hike came as ETF inflows returned, showing that the relationship between Fed tightening and BTC has not been one directional.

A September rate hike analysis had already identified institutional demand as a possible factor that could soften the traditional pressure higher rates place on crypto, even if tighter monetary policy continued to raise the cost of holding risk assets.

The next immediate test comes from the Fed’s October meeting. Weak September payroll growth has reduced the case for another move this month, but inflation remains above target and markets still expect another rate increase could arrive before the end of the year.

Powell, meanwhile, has said threats of criminal investigations into him and the Federal Reserve left him with little choice but to remain on the board.

The Justice Department said Friday it would not reopen a criminal investigation based on the Fed inspector general’s findings. The watchdog found no evidence of criminal wrongdoing or administrative misconduct connected to the $2.4 billion headquarters renovation, though it identified management deficiencies that contributed to the project running well above its original cost.

Attorney General Todd Blanche said an independent audit could still lead to an investigation if it uncovers evidence of criminal conduct, while the Fed has said an outside auditor will review the renovation costs.