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Market Response to Trump’s Criticism of the Federal Reserve

Key Takeaways

The financial markets have voiced their discontent following President Donald Trump’s fresh criticisms of the Federal Reserve. Analysts express concern that Trump’s ongoing public pressure may be undermining the independence of the central bank.

On Monday, investors pulled back from U.S. assets as Trump once again called for lower interest rates, fuelling worries about the Fed’s autonomy. These comments have led to increased unease regarding the value of the U.S. dollar in the context of global finance, according to market analysts.

Themistoklis Fiotakis, a leading strategist at Barclays, noted that markets had already begun exploring alternatives to the dollar—referred to as “de-dollarization”—in response to Trump’s tariff policies. His recent rhetoric is intensifying concerns over the dollar’s stability and potential risks that cannot be overlooked.

Fiotakis emphasized the serious implications of a compromised Fed independence, which poses significant risks not only for the dollar but also for the entire global financial system.

Rising anxieties about the Fed’s autonomy, coupled with ongoing apprehensions about the effects of tariffs on the economy, contributed to a turbulent trading environment on Monday. Major stock indices dropped over 2%, U.S. Treasury securities faced losses, and the dollar reached its lowest value in three years.

The market downturn coincided with a post from Trump on Truth Social, branding Fed Chair Jerome Powell a “major loser” and insisting that recent drops in inflation warrant immediate interest rate cuts. Just the previous week, Trump hinted that Powell’s exit from the Fed could not come soon enough, which raised alarms about possible actions to oust the central bank leader.

Experts suggest that financial markets are increasingly uneasy about the integration of political influence within the central bank. Thierry Wizman, a global currency and rates strategist at Macquarie, pointed out in an interview that while the market may support lower rates, it firmly opposes political interference in the Fed’s decisions.

Wizman further clarified, “The market is okay with rates coming down. What the market is not okay with is having the president or politicians tell the Fed that the rates need to come down.”

What’s Different This Time Around?

Trump’s previous confrontations with Powell are well-documented; he appointed Powell during his first presidential term but subsequently distanced himself from the Fed Chair, even questioning Powell’s influence over the nation’s economy compared to foreign leaders.

Despite his ongoing criticisms, Trump opted against dismissing Powell, potentially to avoid protracted legal disputes. Under President Joe Biden, Powell was reappointed to a term set to conclude in May 2026.

This time around, Trump has been more aggressive in removing leaders from independent agencies, raising questions about whether he might extend this approach to the Fed.

Treasury Secretary Scott Bessent has reportedly warned the White House that firing Powell could precipitate chaos in financial markets. However, one of Trump’s economic advisors, Kevin Hassett, mentioned that the administration is actively considering this issue.

Ian Lyngen, an interest rate strategist at BMO Capital Markets, highlighted the potential consequences of Trump’s statements, expressing skepticism about the president’s rhetoric transforming into tangible actions.

If Trump were to attempt to remove Powell, the matter could ultimately be resolved in the Supreme Court, according to Lyngen.

He concluded by cautioning that amid an already uncertain economic landscape, any move to unsettle Powell could further exacerbate downward pressures on U.S. assets.

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