Investors fear Trump's attacks on Powell will pile on pain

NEW YORK, April 22 (Reuters) - Investors are fearful of a deep hit to asset prices if U.S. President Donald Trump attempts to fire Federal Reserve Chair Jerome Powell, undermining confidence in the central bank's ability to fight inflation and act independently.

That could hurt the already bruised dollar, under-pressure equities and send bond yields higher, market participants said.

The Fed's credibility as the world's most powerful central bank relies on its historic independence. Trump has criticized the Fed for not cutting interest rates quickly enough and if any subsequent chair were to be less inclined to raise rates when needed or to push for faster rate cuts, it could spur inflation.

"Were Powell to be removed, markets would almost certainly interpret it as an inflationary signal, potentially driving long-term interest rates higher and undermining the U.S. dollar's role as the world’s reserve currency," said Elliot Dornbusch, chief investment officer at CV Advisors.

Following Powell's ousting, there would be "violent reactions in markets," according to Jamie Cox, managing partner at Harris Financial Group. "Monetary policy is not a political tool," he added.

Some of the impact has already been seen in asset prices, with the dollar sliding to a three-year low on Monday, stocks selling off with the S&P 500 (.SPX), opens new tab now roughly 16% below its February peak and benchmark U.S. Treasury yields up.

Longer-dated U.S. Treasury yields rose on Monday. Removing Powell could exacerbate upward pressure on the so-called term premium - a measure of the compensation investors demand for the risk of holding long-dated bonds. Market inflation expectations, as measured by 10-year Treasury Inflation-Protected Securities and 10-year Treasuries, remained relatively stable on Monday.

Trump said in a social media post on Thursday that the Fed chair's termination "cannot come fas...
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