In particular, US stock markets and the US dollar suffered their largest recent losses. This recent dip was magnified by President Donald Trump’s consistent and escalating attacks on Federal Reserve Chair Jerome Powell. Recession fears sent the Dow Jones Industrial Average down 2.9%. Beyond just the immediate impacts, this decline is indicative of a deeper issue, having now dropped approximately 10% since the year began. This continued downturn is driving even more overall market related turbulence. The tech-heavy Nasdaq composite index is down more than 3.4% and down 18% since the New Year.
As of early afternoon trades on Monday, the S&P 500 was showing losses of about 3%. It is difficult to overstate how damaging these declines have been to stocks. They’ve gone as far as touching the normally stable havens such as the dollar and US government bonds. Usually, investors consider them as the safe havens during times of market turbulence. Yet, both have recently gone through overwhelming and unprecedented storm from interest rates increasing.
President Trump has been pushing Powell to reduce borrowing costs to boost economic growth. Most recently, he doubled down on his aggressive rhetoric, calling Powell “a big unqualified failure” for failing to do enough to lower interest rates. No wonder Powell is said to be actively eyeing ways to lower rates. This comment importantly highlights the chasm between him and the President.
The stock market was closed for trading on Friday, which intensified speculation regarding future monetary policy as investors reacted to Trump’s comments. In part, this was due to political pressure, which drove up US government debt interest rates. Investors are requiring a higher return on holding Treasuries due to increased concern over the economic outlook.
The continuing public spat between Trump and Powell has added to the general market jitteriness. Analysts are sounding the alarm that the President’s repeated public attacks could undermine faith in the Fed’s independence. This upheaval creates uncertainty about what future monetary policy decisions will look like.