On Monday, President Donald Trump continued his criticism of Federal Reserve Chair Jerome Powell, demanding that the central bank lower its key interest rate to boost the economy.
Trump called Powell “a major loser” and claimed that energy and grocery prices are “substantially lower,” stating there is “virtually No Inflation.” However, he warned that without rate cuts, the economy might slow down.
While gas prices have dropped over the past two months due to falling oil prices, food prices rose in January and March, and inflation is still above the Fed’s 2% target.
Trump’s comments caused the stock market and the dollar to fall, as both U.S. and international investors grew concerned about the U.S. economy. On Friday, a senior White House advisor suggested the administration might look into firing Powell, which would challenge the independence of the Federal Reserve and likely cause chaos in global financial markets.
The stock market dropped sharply when trading began on Monday, with the Dow falling more than 1,000 points, and the S&P 500 index losing nearly 3%. The dollar fell to a three-year low.
The Federal Reserve was created as an independent agency, and most economists believe central banks that aren’t influenced by politics are better at managing inflation. Without independence, it would be harder for the Fed to make unpopular decisions, like raising interest rates, to control inflation.
As Trump pushed for aggressive tariffs on trading partners, the interest rate on 10-year Treasuries has been increasing, rising to 4.37% on Monday.
It is unusual for the dollar to lose value when stock prices drop and Treasury yields rise. Normally, investors buy U.S. government bonds during market turmoil, which lowers yields. However, it seems investors are avoiding U.S. markets due to concerns about increasing risks.
Trump also criticized Powell for being “too late” to act on interest rates. Powell and other Fed officials have admitted that they waited too long to raise rates when inflation first began in 2021.
Currently, Powell has said the Fed is facing a “challenging scenario.” Trump’s tariffs could increase inflation, and the Fed would usually respond to higher prices by raising or keeping interest rates high. However, the economy might slow down because of the tariffs, which would normally lead the Fed to cut rates.
JD Vance and Donald Trump at an event“Our tool only does one of those two things at the same time,” Powell said last week.
As a result, Powell has said the Fed will hold off on taking action as it watches how tariff policies unfold.
Trump criticized Powell again on Friday, stating that he could fire him, though this would likely result in a legal battle that could go all the way to the Supreme Court. Powell has said the president doesn’t have the authority to fire him and has made it clear that he will not resign until his term ends in May 2026.
Kevin Hassett, the director of the White House’s National Economic Council, was asked on Friday if firing Powell was an option. He said Trump “and his team will continue to study that matter” and accused Powell of acting politically.
In a post on Truth Social, Trump accused Powell of lowering rates last year to help Joe Biden and Kamala Harris get elected. The Fed had reduced its key rate three times in late 2024 as inflation slowed and concerns about a slowdown in hiring grew, though the economy later bounced back.
On Sunday, Republican Senator John Kennedy from Louisiana defended Powell on NBC’s “Meet the Press,” stating, “I don’t think the president, any president, has the right to remove the Federal Reserve chairman.” He added that the Federal Reserve should remain independent.
Also on Sunday, Austan Goolsbee, president of the Federal Reserve’s Chicago branch, said on CBS’ “Face the Nation” that weakening the Fed’s independence could lead to higher inflation, slower economic growth, and fewer job opportunities.
William English, an economist at Yale School of Management and a former senior Fed staffer, said Trump’s attacks on the Fed “aren’t going to make the American people better off over time” and could result in higher inflation, which people don’t want.
