Mounting political pressure on Federal Reserve Chair Jerome Powell is driving investors toward inflation-protection strategies. As President Trump repeatedly demands Powell's resignation, market participants anticipate that a more dovish Fed successor could accelerate price growth, compelling creditors to demand higher bond yields.

The repricing of inflation expectations became evident as the 5-year Treasury Inflation-Protected Securities (TIPS) breakeven rate surged to 2.476% Monday night—a three-month peak. This shift coincides with the White House scrutinizing cost overruns in the Fed's headquarters renovation, fueling speculation that the administration seeks legal grounds for Powell's "for-cause dismissal."

Treasury markets reflected these anxieties with 30-year yields breaching 5% Tuesday for the first time since late May. Investors now weigh dual threats: America's ballooning fiscal deficits and potential Fed leadership turmoil. While near-term equity impacts remain ambiguous under looser policy, consequences would likely include dollar depreciation, heightened Treasury volatility, and rising long-term borrowing costs for mortgages and corporate debt.

Trump's persistent criticism of Powell's rate decisions since January has intensified concerns about White House interference in central bank independence. JPMorgan Chase CEO Jamie Dimon underscored this Tuesday, warning that compromising Fed autonomy invites unintended consequences and remains "sacrosanct." Analysts caution that perceptions of eroding independence could trigger violent asset repricing.

Janney Capital Management's Chief Fixed-Income Strategist Guy LeBas outlined the mechanism: "Should markets perceive a politically influenced Fed cutting rates recklessly, long-term inflation expectations would rise—steepening the yield curve. The magnitude could prove dramatic, potentially lifting 30-year yields by percentage points rather than basis points."

Despite June Fed minutes showing most policymakers wary of tariff-driven inflation risks—with scant support for July rate cuts—Trump maintains that Powell's resignation "would be a good thing." While presidents can't dismiss Fed chairs over policy disagreements, Truist Advisory Services' Chip Hughey noted: "Short-term yields might fall on accelerated cuts, but longer maturities would face upward pressure from stubborn inflation expectations and rising term premiums amid diminished institutional trust."