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US stocks and the dollar took a sharp hit recently after President Donald Trump intensified his criticism of Federal Reserve Chair Jerome Powell, calling him "a major loser" for not acting swiftly to reduce interest rates. This escalation of tensions between Trump and Powell has added to the market instability, which has been further exacerbated by Trump's trade policies.
Trump Blasts Powell Over Interest Rate Decisions
In a social media post, Trump slammed Powell, urging the Federal Reserve Chair to lower interest rates “pre-emptively” in an effort to boost the struggling economy. Trump claimed that Powell has been "too slow" in responding to key economic changes and warned that the economy could slow down unless Powell acts decisively.
He went on to state, "There can be a SLOWING of the economy unless Mr. Too Late, a major loser, lowers interest rates, NOW." This harsh critique has reignited tensions between the president and the Federal Reserve, which Powell leads and which Trump had appointed during his first term.
Stock Market Suffers Significant Losses
The market's reaction was swift. The S&P 500, which tracks the largest 500 US companies, dropped by around 2.4% on Monday and has lost approximately 12% of its value since the beginning of the year. Similarly, the Dow Jones Industrial Average saw a decline of 2.5%, while the Nasdaq fell more than 2.5%, marking an 18% decrease since January.
These losses are happening in the midst of the ongoing trade dispute and tariffs imposed by Trump, raising concerns about a potential economic recession.
The Dollar and US Bonds Under Pressure
Typically considered safe assets, the US dollar and government bonds have also faced turbulence. The dollar index, which tracks the strength of the US dollar against a basket of currencies, fell to its lowest point since 2022. Meanwhile, US government debt interest rates rose, indicating that investors are seeking higher returns amid economic uncertainty.
Global Markets React to US Instability
In the Asia-Pacific region, markets showed subdued trading on Tuesday afternoon. Japan's Nikkei 225 and the ASX 200 in Sydney both dropped by around 0.1%, while Hong Kong’s Hang Seng saw a modest increase of 0.2%.
Gold prices, on the other hand, reached a new record high. Spot gold surpassed $3,400 per ounce, as investors flocked to this "safe-haven" asset amidst growing uncertainty in global markets.
Powell Faces Trump’s Continued Pressure
Trump's criticism of Powell is not new. During his first term, the president reportedly considered removing Powell from his position. After being elected for a second term, Trump once again called for lower borrowing costs to help stimulate the economy.
Most recently, Trump publicly urged for Powell’s dismissal on social media, stating that Powell’s termination "cannot come fast enough." However, such a move would be highly controversial and legally questionable, as the Federal Reserve has long been an independent institution. Powell himself has said he believes Trump lacks the legal authority to fire him.
Global Concerns Over US Economic Downturn
Trump’s remarks come as global economic leaders gather for the spring meetings of the International Monetary Fund (IMF) and the World Bank. Economist Christopher Meissner noted that while political pressure on the Federal Reserve was common in the past, the last few decades have shown that central bank independence is crucial for financial stability and low inflation.
The IMF is expected to release new growth projections, which could show a marked downturn for the US economy. Meissner noted, “They used to say, ‘When the US sneezes, the rest of the world catches a cold,’ and it will be interesting to see if that still holds true.”
Many economists anticipate a significant US economic slowdown in the near future, which could have negative ripple effects globally.
