After President Donald Trump hurled more insults at Federal Reserve Chair Jerome Powell on Monday, forcing him to lower interest rates at a time when markets are already feeling the effects of his trade policies, U.S. stocks fell and bonds sold off.
The S&P ended the day 2.4% down. The index is currently down 16% from its February peak, which is close to 20% loss territory in a bear market.
The tech-heavy Nasdaq dropped almost 2.5 percent. The Dow Jones Industrial Average dropped 2.5%, or over 1,000 points. For the first time in almost a week, the yield on the 10-year U.S. Treasury note jumped to 4.41%.
Since Trump’s announcement of “Liberation Day” tariffs on April 2, all three indexes have fallen more than 9%.
Trump stated that “preemptive cuts” were being demanded “by many” now that the economy was experiencing what he dubbed “virtually No Inflation” in a post on Truth Social at 9:41 a.m. He did not specify who had demanded the preemptive cuts, which are not often carried out by the Fed.
According to Trump, the economy might slow down in the absence of the cuts “unless Mr. Too Late, a major loser, lowers interest rates, NOW.”
“Powell has always been ‘To Late,’ with the exception of the election period, when he lowered himself to aid Sleepy Joe Biden, who was later succeeded by Kamala.
What was the outcome of that? Following Trump’s reelection, the Fed last lowered interest rates on December 18.
Despite his longstanding criticism of Powell, whom he nominated during his first term, Trump’s grievances have intensified recently as a result of a significant market response to his tariff shock.
Last week, the administration was also “study[ing]” Trump’s options for firing Powell, according to economic adviser Kevin Hassett.
It would be unprecedented to fire Powell: No Fed chair has ever been ousted by a president. Since the Fed has always been a politically neutral branch of government, the possibility that Trump may intervene has raised fears that inflation would soar as he pushed the Fed to relax its role in regulating price growth in favor of economic expansion.
Elsewhere there was little cause for hope. After a brief decline, bond rates rose, indicating that investors were requesting a higher rate of return on their government loans.
Economists and bank analysts have been keeping a close eye on those yields because they fear that the market was generally shifting away from exposure to the U.S. economy and government as a result of the rising yields and declining stock prices, which is an uncommon combination.
Analysts with the Evercore ISI financial group warned Trump in a note to clients on Monday that if he doesn’t significantly reduce the deficit, he could trigger a “global buyers strike” from bond investors, which could drive bond yields even higher.
Trump may be become more aware of the detrimental impact his tariff policy is having on growth by bringing up the slowing economy.
The U.S. economy is predicted to enter a recession by an increasing number of Wall Street firms and analysts, which is also supported by real-time gross domestic product measures.
Although the rate of inflation has slowed from a peak of 9% during the pandemic, the Fed’s most closely watched indicator of price growth is still above its 2% target and even increased in February.
It seems that not all White House officials support Powell being under pressure. Treasury Secretary Scott Bessent told Bloomberg TV just last week that the administration would start interviewing potential Powell replacements this fall.
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He also said that this would give the Trump administration roughly six months’ notice before Powell’s term ends next year. He didn’t elaborate.
Even though bond yields dropped right after Trump’s appointment, which caused investors to buy more U.S. Treasury notes, which Trump wants, any attempt to fire Powell would probably result in a sell-off of bonds, according to Moody’s Analytics chief economist Mark Zandi.
“Bond investors really don’t like the Fed’s independence impaired, and if the president actually did fire Powell, the bond market would throw up all over it and long-term interest rates would go skyward,” he stated. “It’s a really bad idea. A cornerstone of a well-functioning economy like our own is a well-functioning central bank. If we lose that, we lose our economy’s secret sauce.”
