Former President Donald Trump has recently doubled down on his criticism of Federal Reserve Chair Jerome Powell, labeling him a “major loser.” He is now calling for the Fed to cut rates ASAP to prevent a recession in the United States. Yet all it took to freak out the financial markets was a few aggressive comments from Trump on Truth Social. In response, stock indices have plummeted.
Stagflation is an inevitable consequence of current monetary policy, Trump cautioned without immediate lowering of interest rates. Inflation is almost gone. He went on to declare inflation is nonexistent, boasting that energy prices and “most other things” are going down. His plea for “preemptive cuts” in interest rates is indicative of increasing alarm among some forecasters about the economic prospects.
The reaction of the stock market was immediate. On Monday, shortly after trading began, the Dow Jones Industrial Average plummeted more than 600 points. At the same time, the tech-heavy Nasdaq plummeted almost 2.5%. The U.S. dollar dropped to its weakest point since 2022, a sign of investor anxiety in the wake of Trump’s comments.
“With these costs trending so nicely downward, just what I predicted they would do, there can almost be no inflation, but there can be a SLOWING of the economy unless Mr. Too Late, a major loser, lowers interest rates, NOW.” – Donald Trump
Curiously, though, it was on Trump’s watch in his first term as president that Powell was confirmed. Except Powell has been clear that he believes he cannot be removed from office legally. Trump and his advisors are reportedly already discussing strategies to legally remove Powell. They don’t have much time, as his non-renewable term ends in May of 2026.
Powell has testified in detail about the long-term consequences of trade policies implemented during Trump’s administration. He warned that these kinds of policies might strangle economic growth and might even unwittingly contribute to rising inflation. Powell stated, “Tariffs are likely to move us further away from our goals… probably for the balance of this year.” He reiterated that the Federal Reserve is in a good place. Fortunately, the central bank has room to wait for greater certainty before moving in either direction on its policy.
Krishna Guha, a veteran analyst at Evercore ISI, has impressed upon us the enormous potential implications of Trump’s recent attacks. He warned that casting a shadow over the independence of the Federal Reserve would add unnecessary difficulty to the central bank’s eventual rate-cutting deliberations. Guha continued, “Just by raising the question about Federal Reserve independence, you’re setting a higher bar for the Fed. You’re making it more politically difficult for them to do the cuts.” Go ahead and try to fire the chairman of the Federal Reserve. Watch the biggest market meltdown you’ve ever seen. Yields will spike, the dollar will crash, and equities will tank.
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