Trump's Attacks on Powell May Not Be Over

Donald Trump's comments on firing Fed Chair Jerome Powell sent stocks plummeting, but he has since retreated from the statement. Trump wants the Fed to cut rates and is unlikely to stop agitating on that front. Krishna Guha, vice chairman of Evercore ISI, discusses the implications of Trump's attacks on Powell and the growing concerns around confidence in US assets. Guha warns that if Wall Street begins to doubt Fed independence, things could get much worse.

Donald Trump's recent statements regarding Federal Reserve Chair Jerome Powell have sent shockwaves through the financial markets, leading to significant volatility. Trump initially suggested that he could fire Powell if he wanted to, citing frustration with the Fed's pause on interest rate cuts. This news, coupled with Powell's warning that Trump's tariffs could upset the inflation-growth balance, has raised concerns about the Fed's independence and the potential politicization of monetary policy.

Trump's latest comments, made on social media and in interviews, have continued to pressure Powell. He has argued that inflation is no longer a threat and that the Fed should lower its benchmark rates to support the economy. Trump's assertions, which contradict Powell's assessments, have led to further market uncertainty. On Monday, Trump labeled Powell a "major loser" and demanded immediate interest rate cuts, citing falling energy and food prices as evidence that inflation is negligible [2].

The Fed, under Powell's leadership, has held off on further rate cuts, maintaining a cautious approach to monetary policy. This stance is in contrast to Trump's insistence on immediate action. The Fed's decision to pause rate cuts was initially driven by inflation spiking during the COVID-19 pandemic and the subsequent recovery. However, the recent slowdown in inflation has led the Fed to reevaluate its policy [1].

The market's reaction to Trump's statements has been swift and dramatic. Stocks of companies like Powell (NASDAQ:POWL), Quest Resource (NASDAQ:QRHC), AerSale (NASDAQ:ASLE), Asana (NYSE:ASAN), and Wayfair (NYSE:W) fell significantly in the afternoon session following Powell's speech in Chicago. The Fed chair's comments about tariffs' potential impact on inflation and the economy exacerbated investor anxiety, highlighting the growing concerns over global trade tensions and the Fed's limited room to maneuver [3].

Krishna Guha, vice chairman of Evercore ISI, has warned that if Wall Street begins to doubt the Fed's independence, things could get much worse. The market's confidence in the Fed's ability to make decisions based on economic fundamentals, rather than political pressures, is crucial for stable financial markets. Guha's caution underscores the broader implications of Trump's attacks on Powell and the ongoing tensions over the Fed's independence [1].

As Trump continues to agitate for rate cuts, investors and financial professionals must navigate the uncertainty created by his comments. The market's volatility is a reminder of the delicate balance between political pressures and economic realities. The Fed's ability to maintain its independence and make decisions based on sound economic principles will be key to stabilizing the markets and ensuring long-term growth.

References:
[1] https://ca.finance.yahoo.com/news/donald-trump-says-no-intention-080350246.html
[2] https://wallstreetpit.com/126232-trump-blasts-powell-as-loser-demands-fed-cut-rates-now/
[3] https://finance.yahoo.com/news/powell-quest-aersale-asana-wayfair-200551012.html