US stocks and the dollar experienced significant declines as President Donald Trump’s attacks on the Federal Reserve Chair, Jerome Powell, eroded investor confidence in the world’s top economy.
On Monday, the benchmark S&P 500 plummeted by 2.36%, marking one of the steeper one-day declines this year. The tech-heavy Nasdaq Composite also suffered a 2.55% drop, resulting in an almost 18% decline from its position at the beginning of the year.
The US dollar weakened to a three-year low, reaching a point where it was down to 97.923 against a basket of major currencies. Additionally, US government bonds fell as investors offloaded traditional safe-haven assets, causing the yield on 10-year Treasury notes to rise above 4.4%.
Asian markets followed suit on Tuesday, with various indices like Japan’s Nikkei 225, Hong Kong’s Hang Seng Index, and Taiwan’s TAIEX experiencing declines of approximately 0.5% to 0.8%.
These significant losses were triggered by Trump’s intensified attacks on Powell, labeling him a “major loser” and “Mr Too Late” for his slow response in cutting interest rates. Trump has repeatedly threatened to replace Powell, with his top economic adviser, Kevin Hassett, suggesting the possibility of removing him.
The Federal Reserve’s policy-making committee has expressed caution about lowering interest rates further, citing concerns over inflation due to Trump’s tariffs. Powell also warned about the potential consequences of tariffs, including weak growth, rising unemployment, and higher inflation.
Gagnon, a senior fellow at the Peterson Institute for International Economics, believes that markets are worried about Trump’s potential attempt to undermine the Federal Reserve’s long-standing protection against political interference. Powell, despite being nominated by Trump, has stated he would not resign and can only be removed for misconduct.
Under a 1935 US Supreme Court ruling, the executive branch is prohibited from dismissing the heads of independent federal agencies like the Federal Reserve unless there is a valid cause. However, the Trump administration is seeking to overturn this precedent in a Supreme Court case related to their dismissal of the heads of the Merit Systems Protection Board and the National Labor Relations Board.
Any attempt to dismiss Powell would likely send shockwaves through financial markets given the importance of the Federal Reserve’s independence in setting interest rates. On Monday, Goolsbee, the president and CEO of the Federal Reserve Bank of Chicago, warned that undermining the central bank’s independence would have negative consequences, including higher inflation, worse growth, and higher unemployment.
Ultimately, the financial markets are reacting to the growing probability of presidential interference with the Federal Reserve. Investors may become less interested in US investments if they believe the Fed’s independence will be compromised, resulting in a potential decline in future economic performance compared to the past.
Source: https://www.aljazeera.com/news/2025/4/22/us-stocks-and-dollar-tumble-as-trump-renews-attacks-on-fed-chair-powell?traffic_source=rss
