Wall Street has already sensed a change in the air. Trump has explicitly stated his intention to select the next Federal Reserve Chair and has repeatedly emphasized the need for rate cuts, even outright expressing hope that the new leader will align with his economic agenda. All of this hints that we are about to enter a phase completely different from the Powell era.

The market's current reaction is somewhat muted, but traders and analysts have already started brainstorming—what would happen if the Fed's independence were to be weakened?

Let's start with a practical issue: the Federal Reserve indeed controls short-term interest rates, but the actual borrowing costs in the U.S. mainly depend on long-term Treasury yields. These yields reflect market expectations of future short-term rates, not the current policy rate.

This introduces a key risk. What if the new Chair aggressively cuts rates while the economy is still performing well? How would the market react? Likely not a decline in bond yields, but rather an increase in inflation expectations and a rebound in long-term yields. The final outcome? Higher borrowing costs, and the stock market could also come under pressure.

Interestingly, one person's power is actually limited. The Federal Reserve Board has 12 members, and while the Chair has significant influence, it also depends on the attitudes of other members. The real contest may just be beginning.