Jerome Powell, the Chair of the Federal Reserve, recently ate a boatload of crow. That didn’t stop former President Donald Trump from incurring his own furious response at a Senate Banking Committee hearing. In response to criticism over his decision to keep interest rates the same, Powell stood firm, focusing on the commitment of the Federal Reserve to tackle inflation. Trump’s harsh public statements against Powell’s stewardship of the Federal Reserve have spooked a lot of investors. His threat to accelerate Powell’s replacement is generating additional anxiety over this move among market analysts.
At Wednesday’s Senate hearing, Powell made it clear again that the inflation-fighting imperative is still the Fed’s top priority. He noted that the Federal Reserve’s preferred inflation measure, the personal consumption expenditures index, will jump to 2.3%. At the same time, the new core inflation measure seems destined to rise to 2.6%. This is on the heels of an inflation rate that surprised observers by falling to 2.1% for April, with a core inflation rate of 2.5%.
Trump’s scathing judgment on Powell’s performance was unrestrained. He stated, “He goes out pretty soon, fortunately, because I think he’s terrible.” The presumptive former president is supposed to name Powell’s successor by September/October. He indicates that a shift in monetary policy would be possible if he returns to power. Trump mentioned, “I know within three or four people who I’m going to pick.”
The aftermath from Trump’s comments have already begun to shake up financial markets. In reaction to Powell’s testimony, the 10-year Treasury yield decreased by 2 bps to 4.27%. The 2-year yield decreased by 1.2 basis points, ending at 3.76%. The 30-year yield dropped 2 bps, to 4.82%, as yields inverted further. This decline in yields reflects a growing uncertainty among investors regarding future monetary policy and the potential impacts of political changes.
As investors await May’s personal consumption expenditures index due on Friday, they are closely monitoring the implications of Trump’s comments and Powell’s responses. Analysts suggest that any significant shifts in the leadership of the Federal Reserve could lead to increased volatility in financial markets.