In Washington, President Donald Trump reiterated his onslaught on Monday against Jerome Powell, the Chair of the Federal Reserve, insisting that the central bank should reduce its key interest rates to foster economic growth. Trump labeled Powell as “a major loser” while suggesting that energy and grocery prices are noticeably lower and that inflation is virtually non-existent. Nonetheless, he warned that a lack of rate cuts might slow the economy.
While gas prices dropped over the past two months due to declining oil costs amidst fears of slower economic growth, food prices saw a rise in January and March. Overall, inflation continues to surpass the Federal Reserve’s target of 2%. Trump’s remarks led to a decline in stock markets and the dollar, as U.S. and international investors are increasingly anxious about America’s economic health. Recent reports also indicate that the White House is examining the possibility of removing Powell from his position, a move that could challenge the Fed’s independence and possibly cause ripples across global financial markets.
Following Trump’s statement, the U.S. stock market, already dipping at opening on Monday, plunged further, with the Dow losing over 1,000 points and the S&P 500 index dropping nearly 3% by midday. Concurrently, the dollar reached a three-year low. Established as an independent entity, the Federal Reserve typically performs more effectively in managing inflation without political pressures, enabling it to make unpopular decisions like raising interest rates when necessary.
Recently, the rates on 10-year Treasuries have climbed due to Trump’s implementation of assertive tariff policies against trade partners, accompanied by his continued criticisms of Powell and the Fed. On Monday, the interest rate increased again, reaching 4.37%. The unusual occurrence of the dollar depreciating while stock prices fall and Treasury yields rise suggests investors might be avoiding U.S. markets because of perceived risks.
Trump also took aim at Powell, claiming he was “too late” in adjusting interest rates. While Powell and other Fed officials have acknowledged a delay in raising rates when inflation initially began rising in 2021, Powell currently emphasizes the complex situation the Fed faces. The tariffs Trump implemented could exacerbate inflation, to which the Fed would traditionally respond by maintaining or raising interest rates. Conversely, the economy might slow due to these tariffs, prompting the Fed to consider rate cuts.
“Our tool only does one of those two things at the same time,” Powell remarked recently, highlighting the Fed’s dilemma. Consequently, Powell has stressed the importance of the Fed maintaining a neutral stance as it monitors the outcome of tariff policies. Additionally, Trump threatened to dismiss Powell, despite it potentially triggering a legal conflict that could escalate to the Supreme Court. Powell has indicated that Trump lacks the power to fire him and intends to complete his term ending in May 2026.
On Friday, Kevin Hassett, head of the White House’s National Economic Council, mentioned that Trump’s team is still contemplating the possibility of firing Powell, further accusing him of political bias. Trump similarly alleged in a Truth Social post that the Fed’s rate cuts last year were politically motivated to aid Joe Biden and Kamala Harris’s elections. Last year, the Fed decreased its key rate thrice as inflation started cooling and employment growth decelerated, though it later revived.
Several voices have defended Powell’s tenure, including Republican Senator John Kennedy of Louisiana, who argued that no president possesses the authority to remove the Federal Reserve Chair. “The Federal Reserve ought to be independent,” Kennedy stated during an NBC interview. Supporting this sentiment, Austan Goolsbee, Federal Reserve’s Chicago branch president, emphasized that undermining the Fed’s autonomy could result in higher inflation, slower economic growth, and reduced employment.
Lastly, William English, a Yale School of Management economist and former senior Fed staff member, cautioned that Trump’s criticisms of the Fed could adversely impact the American populace over time, likely leading to increased inflation, a scenario nobody desires.