1. The market reacted negatively after President Donald Trump once again criticized the Federal Reserve on Monday.
2. Analysts said investors are uncomfortable with the notion that the president may be pressuring the central bank.
3. Trump has fired heads of other independent agencies, and traders may be concerned that Fed Chairman Jerome Powell could be next.
The market is sending a message to President Donald Trump: Don't mess with the Federal Reserve.
Investors fled U.S. assets once again on Monday after Trump increased pressure on the Fed to cut interest rates—potentially threatening the Fed's ability to act independently in the face of presidential desires. Analysts say Trump's latest criticisms are causing investors to be even less trusting of the U.S. dollar and the nation's dominant role in the global financial markets.
According to Themistoklis Fiotakis, a senior strategist at British bank Barclays, the market has "started to think about the idea of de-dollarization" following Trump's tariff policies. Trump is pouring gasoline on the fire, Fiotakis wrote, bringing risks to the dollar that are "too big to ignore."
Fiotakis wrote in a note to clients: “The perception of Fed independence is under threat… it presents very significant risks not only to the dollar but also to the global financial system.”
Concerns about the Fed's independence have further fueled ongoing worries about the impact of tariffs on the economy, leading to a volatile trading session on Monday. Major stock indices fell more than 2%, U.S. Treasuries were sold off again, and the dollar hit its weakest level in three years.
The sell-off occurred after a post on Truth Social on Monday when Trump called Fed Chairman Jerome Powell a "big loser" and said that lower inflation figures require interest rate cuts "RIGHT NOW". Last week, he wrote that firing Powell "cannot happen fast enough," raising concerns that the president would try to dismiss this central bank governor.
Thierry Wizman, a global currency and interest rate strategist at Australia's Macquarie financial services firm, stated in an interview that the financial markets are clearly uncomfortable with the politicization of the central bank.
Wizman stated: “The market accepts lower interest rates. What the market does not accept is the president or politicians telling the Fed that rates need to be lowered.”
What is different this time?
Powell is no stranger to Trump's attacks. Trump appointed Powell as Fed chairman during his first term as president, although he quickly became bitter with Powell and publicly criticized him. In 2019, he questioned whether Powell was a bigger "enemy" of the United States than Chinese President Xi Jinping.
Despite the criticism, Trump ultimately decided not to remove Powell and thus avoided any potential legal battles. Former President Joe Biden reappointed Powell as Fed chairman for a term expected to end in May 2026.
In his second term, Trump has been more aggressive in removing independent agency leaders, whether at the Federal Trade Commission or the National Labor Relations Board.
It is unclear whether he will bring that perspective to the Fed. According to Politico, Treasury Secretary Scott Bessent told the White House that firing Powell could cause chaos in the financial markets. But Kevin Hassett, Trump's top economic advisor, said on Friday that the White House would "continue to study the matter."
Ian Lyngen, interest rate strategist at BMO Capital Markets, wrote in a note to clients: "We would be remiss to conclude that the president's rhetoric will not lead to action."
Lyngen wrote that if he is indeed trying to remove Powell, this question could end up in the Supreme Court.
“At a time when the Administration has created increasingly high levels of instability in the economic outlook, any efforts to remove Powell would further increase downward pressure on U.S. assets,” he wrote.
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