US President Donald Trump has sparked chaos in the markets with his latest salvo against Federal Reserve Chair Jerome Powell. In a shocking reversal, Trump said Powell’s “termination” couldn’t come soon enough, sending stocks tumbling.
Trump’s attacks on Powell are part of a broader strategy to pressure the Fed to cut interest rates faster. However, this move poses a significant threat to the economy, undermining the credibility of the world’s most important central bank.
As experts warn, attacking the independence of the Fed is reckless and could lead to self-defeating consequences. By publicly undermining Powell, Trump risks putting upward pressure on inflation expectations, making it harder for the Fed to cut rates.
The Fed plays a crucial role as an economic safety net, absorbing big shocks through interest rate policy-setting and its virtually unlimited balance sheet. Without independence, the Fed’s ability to keep prices in check is compromised.
“Fighting inflation requires being non-political and non-partisan,” said Erasmus Kersting, an economics professor at the Villanova School of Business. “Otherwise, the temptation to boost the economy for political gains is ever-present.”
Any attempt to fire Powell would lead to a surge in “stagflation trades,” causing bond yields to shoot higher and likely guaranteeing a recession. The resulting panic would make borrowing money expensive, further exacerbating economic woes.
As markets struggle to adapt to Trump’s unpredictable policies, one thing is clear: the Fed’s independence is crucial for maintaining economic stability.
Source: https://edition.cnn.com/2025/04/21/business/trump-fed-powell-nightcap/index.html