In a significant turn of events, US stocks and the dollar have experienced a notable decline as President Donald Trump escalates his criticism of Federal Reserve Chair Jerome Powell. In a recent social media post, Trump labeled Powell a "major loser" for his failure to lower interest rates, which he argues is necessary to stimulate the economy.
Trump's call for preemptive interest rate cuts comes as he expresses concern that the economy is on the brink of a slowdown. He stated, "There can be a SLOWING of the economy unless Mr. Too Late, a major loser, lowers interest rates, NOW." This public outcry reflects the growing tension between the President and the Fed, which is responsible for managing monetary policy and economic stability.
The President's ongoing feud with Powell coincides with a tumultuous period for the stock market. The S&P 500, an index that tracks 500 of the largest US companies, plummeted approximately 2.4% on Monday alone. Since the beginning of the year, the index has lost around 12% of its value, indicating a troubling trend in investor sentiment.
Similarly, the Dow Jones Industrial Average fell by 2.5% and has seen a decline of about 10% year-to-date. The Nasdaq composite also suffered, dropping more than 2.5% and down roughly 18% since January. This downward trajectory raises concerns about a potential economic recession, exacerbated by Trump's tariff plans, which have already incited a stock market sell-off.
Typically, the dollar and US government bonds are viewed as safe assets during periods of market instability. However, they too have not been immune to the recent turbulence. On Monday, the dollar index, which gauges the strength of the dollar against a basket of currencies, including the Euro, fell to its lowest level since 2022. Additionally, interest rates on US government debt rose as investors sought higher returns for holding Treasuries.
This latest round of criticism from Trump isn't new; it dates back to his first term in office, when he reportedly contemplated firing Powell due to his dissatisfaction with the Fed's policies. Trump has persistently urged Powell to lower borrowing costs, asserting that doing so could bolster economic growth.
In light of Powell's recent warnings that Trump's import taxes could lead to increased prices and slowed economic growth, the President's criticisms have intensified. Just last week, Trump publicly called for Powell's termination, declaring, "Powell's termination cannot come fast enough." Such a move would not only be controversial but also legally questionable, given the tradition of independence upheld by the Federal Reserve.
Powell himself has previously stated that he does not believe the President has the legal authority to remove him from office. Nonetheless, one of Trump's top economic advisers confirmed that the administration is exploring this option, coinciding with a day when the US stock market was closed for trading.
As the situation develops, market participants will be closely monitoring both Trump's statements and the Federal Reserve's responses to the ongoing economic challenges.
