On Monday, financial markets experienced unprecedented turmoil. This turmoil came on the heels of former president Donald Trump’s very public attempts to oust Jerome Powell, the Federal Reserve Chair that he appointed in his first term. Trump’s comments were just the latest reason for a deeper selloff in U.S. stock indexes and a further plunge in the dollar.
This included the dollar index, which plummeted to its lowest level since 2022 – a powerful signal of diminished confidence in the currency. The S&P 500 fared just as badly, falling more than 2.4% on the same day. This drop, while significant, is a symptom of a larger and more alarming trend, as the overall index falls about 18% since January. This toxic cycle of doom has understandably spooked investors, sending many of them fleeing towards safe havens, such as gold.
Gold prices reached a new all-time high. This increase was partly driven by robust demand from investors looking to hedge themselves against the unpredictable economy and market volatility. As U.S. stocks and the dollar plunged, the futures market indicated a slight improvement ahead of the U.S. markets opening at 09:30 EST (14:30 BST), suggesting a potential recovery could be on the horizon.
As we noted above, Trump has said quite a bit about Powell’s leadership. He repeatedly encourages him to lower interest rates, “pre-emptively” if necessary, to foster faster economic growth. Like many investors, he is frustrated with Powell’s commitment to high rates and says they should be lowered, starting today.
“There can be a SLOWING of the economy unless Mr. Too Late, a major loser, lowers interest rates, NOW.” – Donald Trump
Powell’s tenure as Federal Reserve Chair has certainly been par for the course in many ways. He even warned in the past that Trump’s import taxes would raise prices and increase economic malaise. This very public friction displays the value of the Federal Reserve’s independence to set interest rates according to its judgment about the economy. This principle is a bedrock of America’s economic strength. Incredibly, the independence shown by the PBoC is seen in other central banks, even in developed economies, including the Bank of England in the UK.
Thursday, Trump cranked that rhetoric up a notch on social media. He called for Powell’s firing saying that it “can’t come fast enough.” These kind of statements have spooked markets again, adding to the chaos surrounding an already shaky situation.
Analysts have one more big number under scrutiny—that of the International Monetary Fund (IMF). With the IMF set to release country-specific growth forecasts in the coming week. These forecasts will be essential to understanding how countries are faring in the eye of the storm of adverse global economic conditions.
Either way, Trump’s unexpected criticism brings new levels of uncertainty to the revenue-seeking financial markets. At the same time, the Federal Reserve’s hands-off approach has kept the maelstrom going. For the first time, investors are factoring in the effects of political rhetoric on economic policymaking as they chart their course through a highly tumultuous sea.