US President Donald Trump is once again shaking up global investment markets with his threats to meddle in the independence of the US Federal Reserve.
The president has intensified his conflict with the Fed, labeling chair Jerome Powell a "major loser" and demanding immediate interest rate cuts—echoing his previous tirades during his first term. His latest attacks come in response to Powell's comments on the administration's tariff policies, which he described as "very fundamental policy changes" that could lead to lower growth and higher inflation.
These remarks caused stocks to drop sharply on Thursday, and Trump's weekend threats, including hints at possibly firing Powell, sent Wall Street spiraling again on Monday. Trump expressed via social media that Powell's termination could not come fast enough, dubbing him "Mr. Too Late".
Economist Zac Gross warned that a politicized Fed could spell disaster for markets, potentially leading to much higher inflation and interest rates, ultimately resulting in a massive stock market crash. The turbulence wasn't limited to stocks; bond prices also fell, pushing market interest rates higher and prompting investors to flee to safer assets like the Swiss franc and gold.
Can Trump Fire US Fed Chair Powell?
Federal Reserve lawyers believe Trump lacks the power to fire Powell. However, a forthcoming ruling from the US Supreme Court may clarify whether Trump can remove board members from independent agencies, potentially emboldening him against Powell.
While Trump's actions have sparked public outrage and large protests, the global financial market's response—challenging nearly a century of US dominance—will be hard for the administration to ignore. Even if Trump manages to oust Powell, the Fed's other board members may resist any attempts to influence interest rate settings.
Powell's term as chair expires in May next year, but he can remain on the board until 2028, making it difficult for any new appointee to exert influence. Among those rumored to be considered for the role is Kevin Hassett, White House economics adviser, who has confirmed Trump's exploration of legal options to remove Powell.
The ongoing turmoil and potential instability at the head of the world’s largest central bank are undermining America’s financial dominance. Dr. Gross noted that markets are acutely aware of the damage such conflicts could cause. Even if Powell stays, his eventual departure would allow Trump to appoint someone more compliant, adding to the uncertainty and volatility in global markets.
"Anytime Donald Trump indicates that he's willing to intervene in a way that's going to cause economic harm and disruption, that's going to be reflected in the financial markets."
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