The president of the United States hasn’t grown tired of using Federal Reserve Chair Jay Powell as a punching bag. But financial markets tell a different story. And it’s a bad one.
President Donald Trump continued his streak of lambasting the world’s most important central banker on Monday. Trump called for “preemptive” rate cuts, labeled Powell a “major loser” and even suggested that the Federal Reserve cut rates in September “in order to help Sleepy Joe Biden, later Kamala, get elected.”
That last bit is unfortunate, seeing as Powell and just about everybody else associated with the Fed spent much of the past year disputing the idea that the U.S. central bank ever makes monetary policy decisions based on politics, or even the timing of an upcoming election.
One group that has been notably silent: Hill Republicans. Most have supported keeping Powell in the job, but try not to get involved in the back and forth on Trump’s firing threats. That may be more difficult when lawmakers return to Washington next week.
Market mayhem: Trump fired off that post Monday just after markets opened. The trading day that followed was a slog for investors. That had as much to do with Trump’s latest barrage as with White House economic adviser Kevin Hassett’s suggestion on Friday that the president was probing Powell’s removal. The S&P 500, Nasdaq composite and Dow Jones Industrial Average all fell by more than 2%.
Any Trump move to fire Powell wouldn’t be a one-and-done decision. The Fed chair has made clear he doesn’t believe Trump has the authority to fire him or other Fed officials serving on the Federal Open Market Committee. This would all end up in court.
But the market’s swoon makes clear that investors won’t wait – and aren’t waiting – for the Supreme Court to declare whether the White House controls interest rates. The “Sell America” trade is in full force as the dollar loses strength, Treasury yields rise and stocks continue to be routed.
Stock market volatility is rarely the result of one factor. Many headlines on Monday attributed the latest downward slide to Trump’s persistent, gradually escalating threats to Powell – which is really a proxy for how worried investors are about the loss of independent monetary policy in the United States.
But the other side of the sell-off is the trade war, Trump’s tariff approach and increasingly uncertain end game.
In that sense, the market is responding to one story — Trump. We imagine that’s just how the president likes it.
