If there’s one thing certain to give markets the wobbles in the near term, it’s the idea that the US central bank is no longer genuinely beyond the control of the executive.
But that hasn’t bothered Donald Trump, who continues to exert pressure on the independent position of the Federal Reserve chair, even as US markets roil due to tariff uncertainty and economic mismanagement.
Pressure on Powell
Major equity indexes fell sharply yesterday and the US dollar slid to a three-year low, as investors responded to the renewed political pressure on the Federal Reserve.
The Dow Jones dropped 972 points, or 2.48%, while the S&P 500 slumped 2.36% and the Nasdaq shed 2.55%.
All three indices are on track for their worst month since 2022, with nearly all constituents in the Dow and S&P 500 ending the session lower.
The US dollar index, which measures the greenback against six major currencies, lost more than 1%, marking its lowest level since early 2022.
Analysts pointed to growing worries that the president will oust the Fed chair following another round of attacks on Powell.
While legal precedent limits a president’s authority to dismiss a Fed chair over policy disagreements, the administration’s public threats and actions in other similarly independent departments have raised concerns over institutional credibility and policy stability.
As an example, Trump has already appointed an FBI head of his own choosing, twice, despite the term of the position (ten years) having been designed to span presidential tenure and thereby put the role beyond party politics.
He sacked and replaced James Comey in his first term as president, and recently installed Kash Patel to replace his own nominee, Christopher Wray. It seems he now has his sights trained on the Fed – seemingly looking for a scapegoat for his tariff-induced stockmarket crash.
Inflationary risks
Trump reiterated his dissatisfaction with Powell’s handling of interest rates, stating in a social media post that Powell was a “major loser” and suggesting he could be removed from office.
These followed similar comments made last week after Powell warned of the inflationary risks associated with Trump’s tariff proposals, which could complicate the central bank’s policy trajectory.
Investors are increasingly uneasy about the potential for executive interference in monetary policy.
Market analysts noted that the dollar’s sharp decline, coupled with a surge in gold prices – up more than 3% to a record above US$3,400 per troy ounce – reflects a broader loss of confidence in the US policy environment.
Treasury yields also climbed, with the benchmark 10-year note rising above 4.4%.
In currency and bond markets, strategists pointed to a “flight from the US dollar” amid speculation that trade negotiations with key partners, including Japan, could remain unresolved for months.
Recent talks have failed to produce any breakthrough.
The Federal Reserve’s next rate-setting meeting is scheduled for early May, with futures markets indicating an 88% probability that interest rates will remain unchanged.
Wall Street’s attention will now turn to first-quarter earnings results, with Tesla and Alphabet set to report this week.
But analysts warn that the market mood is likely to remain cautious for the foreseeable future, as Trump’s economic and trade machinations continue to unsettle investors.