If you thought President Donald Trump’s trade war seemed chaotic, buckle up: His latest salvo poses an even greater threat to the economy. After months of swearing up and down he wouldn’t fire Federal Reserve Chair Jerome Powell, Trump on Thursday reversed course and said Powell’s “termination” couldn’t come soon enough. Stocks fell sharply. Then US stock traders had a nice three-day weekend — the first sunny and warm spring weather New York City has seen this year — to ponder whether Trump was serious. Perhaps Thursday’s threat was just a bit of bluster from a president prone to tantrums — a one-off social media post that his more stable advisers will surely try to rein in to avoid an all-out panic. Or…not. Shortly after the US stock market opened Monday morning, Trump once again attacked Powell for ostensibly not cutting interest rates fast enough. Stocks immediately tumbled and the US dollar fell to its lowest level in three years. While Trump’s tariff plan has been disruptive, the uncertainty it created had, to an extent, become priced in. Markets famously hate uncertainty, but the 90-day pause on the administration’s most aggressive tariffs offered a measure of reassurance that Trump may relent if there’s enough of a negative reaction. Attacking the independence of the Federal Reserve is a new level of recklessness that few thought possible. But now even Kevin Hassett, the White House adviser who literally wrote a book arguing against firing the Fed chair, is saying openly that the administration is discussing whether to do so before Powell’s term ends a year from now. To be sure, these attacks on Powell could prove empty threats. Trump may be blowing off steam or teeing up Powell as a scapegoat for a future tariff-driven recession, said Krishna Guha, vice chairman of Evercore ISI, in a note. “But this is self-defeating,” he writes. By publicly undermining Powell, Trump “risks putting upward pressure on inflation expectations, making it harder for the Fed to cut rates.” Putting aside the very real legal question of whether Trump can actually oust a sitting Fed chair (tl;dr: it’s debatable), here’s why Trump’s renewed fixation on Powell, whom Trump himself appointed in 2017, is so concerning: The Fed, an independent body that sets US monetary policy, is the ultimate economic safety net. It has the power to absorb big shocks — like a pandemic, say, or a recession triggered by the upending of global trade — through interest rate policy-setting and the use of its virtually unlimited balance sheet. During the 2022-2023 inflation crisis, the Fed raised rates at a historic pace. Undoubtedly, former President Joe Biden wasn’t pleased that mortgages, credit card rates and auto loans were suddenly surging, exacerbating America’s affordability crisis. But the Fed accomplished its mission, bringing inflation down near normal levels without plunging the economy into a recession. Take away that independence, and you take away the Fed’s ability to keep prices in check. “Fighting inflation requires being non-political and non-partisan,” said Erasmus Kersting, an economics professor at the Villanova School of Business. “Otherwise, the temptation to boost the economy for political gains is ever-present, and especially populist leaders have given in to that temptation all the time.” Presidents like when the Fed cuts rates because it spurs economic growth, but it also leads to higher inflation. Once the public, including global investors, loses faith that there’s any real will to stop it, “that inflation is almost impossible to dislodge,” Kersting added. In other words, the Fed is a buffer against the worst effects of Trump’s economic whims. Trump wants the Fed to cut rates faster, but a big part of the reason for the Fed’s caution is Trump’s own tariff agenda, which is “highly likely to generate at least a temporary rise in inflation,” as Powell noted in a speech last week. Putting in place a Fed chair willing to take orders from Trump would undermine the credibility of the world’s most important central bank, further eroding America’s unique position as the most trusted place to park money and investments. But it could also severely hurt the economy. Cutting rates fast and sharply could reignite inflation just as Trump’s tariffs slow economic growth to a crawl — the Fed’s GDPNow tool currently predicts the economy went into reverse and contracted last quarter. Any actual attempt to fire Powell, which Evercore analysts said Friday was not likely, would lead to a surge in “stagflation trades,” Guha said, referring to the nasty combo of an economy suffering from slow growth and high prices at the same time. (See also: American in the 1970s.) The resulting panic would cause bond yields to shoot higher (read: borrowing money to buy a home or car would become even more expensive), and, according to Guha, likely guarantee a recession.
Trump keeps finding new ways to terrify Wall Street
TruthLens AI Suggested Headline:
"Trump's Criticism of Federal Reserve Chair Raises Concerns About Economic Stability"
CNN
7.1
TruthLens AI Summary
President Donald Trump's recent comments regarding Federal Reserve Chair Jerome Powell have raised significant concerns among Wall Street investors and economists. After months of publicly stating he would not fire Powell, Trump unexpectedly declared that Powell's termination was overdue, resulting in a sharp decline in stock prices. The market's reaction was compounded by Trump's subsequent criticism of Powell for not reducing interest rates quickly enough, leading to further drops in stock values and the U.S. dollar hitting a three-year low. This unpredictability surrounding Trump's stance on the Federal Reserve has created a climate of uncertainty, which is particularly troubling given the Fed's crucial role as an independent body responsible for setting U.S. monetary policy. Historically, the Fed has acted as an economic safety net, capable of mitigating shocks such as recessions or financial crises through interest rate adjustments and other measures. Trump's attacks on Powell are seen as an unprecedented level of recklessness that could undermine the Fed's independence and its ability to manage inflation effectively.
Economists warn that Trump's fixation on Powell could have dire consequences for the economy. By publicly undermining the Fed's independence, Trump risks increasing inflation expectations, making it more challenging for the Fed to implement necessary rate cuts. The relationship between political pressures and economic performance is delicate; while presidents may prefer lower interest rates to stimulate growth, such actions can lead to higher inflation, especially when coupled with trade tariffs. Analysts note that Trump's tariff agenda could exacerbate inflation, contradicting his desire for lower rates. The potential for Trump to attempt to replace Powell with someone more compliant raises fears about the credibility of the U.S. central bank, which could jeopardize the nation's economic stability. Should Trump proceed with any move to dismiss Powell, it could trigger a wave of panic in the financial markets, leading to stagflation—a scenario characterized by stagnant economic growth and rising prices—similar to the economic challenges faced in the 1970s. Such an outcome would not only harm the economy but also diminish global confidence in the U.S. as a safe investment haven.
TruthLens AI Analysis
The article provides an analysis of President Donald Trump's recent statements regarding Federal Reserve Chairman Jerome Powell and their implications for Wall Street and the broader economy. It highlights the volatility and unpredictability that Trump's comments introduce into the financial markets, particularly in relation to interest rates and trade policies.
Economic Uncertainty and Wall Street Reaction
Trump's sudden shift in rhetoric towards Powell, suggesting his termination, has caused immediate reactions in the stock market, with significant declines observed. This illustrates how Trump's erratic communication style can directly impact investor confidence and market stability. The mention of a “three-day weekend” indicates a brief pause for traders to assess the situation, which adds to the uncertainty surrounding economic forecasts.
Psychological Warfare in Politics
The article touches on the psychological aspect of Trump's approach—whether his threats are genuine or mere bluster. This creates a dual narrative, where investors must weigh the potential for actual policy changes against the backdrop of Trump's tendency to use social media for dramatic statements. The uncertainty is compounded by the conflicting views from advisors who previously supported Powell, indicating a rift within the administration regarding economic policy.
Manipulation of Market Sentiment
By attacking Powell, Trump risks not only undermining the Federal Reserve's independence but also creating upward pressure on inflation expectations. This could complicate the Fed's ability to manage economic conditions effectively. The article suggests that Trump's actions might be aimed at deflecting blame for any future economic downturn, indicating a strategic manipulation of public perception.
Market Impact and Investor Sentiment
The ongoing volatility is likely to affect specific sectors and stocks, particularly those sensitive to interest rate changes and trade policies. Investors may react negatively to any signs of instability in the Federal Reserve's leadership, which could lead to broader market consequences. The implications of this article extend beyond immediate stock market reactions, as they signal potential shifts in U.S. economic policy.
Target Audience and Reception
This article appears to cater to investors, analysts, and the general public who are concerned about economic stability. It aims to inform readers about the potential risks associated with Trump's approach to economic management and its direct effects on financial markets.
Overall Reliability and Trustworthiness
The article's reliability hinges on its analysis of recent events and their contextual implications. It provides insights into the political dynamics at play, although it may exhibit a degree of bias against Trump's administration. The language used suggests a critical stance toward the unpredictability introduced by his comments.
In conclusion, the article effectively outlines the threats posed by Trump's rhetoric to Wall Street and the economy, framing it within the context of political strategy and market sentiment.