President Donald Trump intensified his criticism of the Federal Reserve chair, urging the central bank to lower its key interest rate to stimulate the economy. Trump labeled the chair as “a major loser” and claimed that energy and grocery prices have significantly decreased, asserting there is “virtually No Inflation.” However, he cautioned that the economy might decelerate without reductions in interest rates. While gas prices have declined over the past two months due to fears of slower growth affecting oil costs, food prices saw an increase in January and March, and overall inflation remains above the Fed’s 2% target.
The president’s remarks contributed to a downturn in the stock market and the dollar, as investors both domestically and internationally expressed growing concern about the economic outlook of the United States. In a recent development, a senior White House adviser revealed the administration is exploring the possibility of removing the Federal Reserve chair, a move that could undermine the Fed’s independence and potentially send shockwaves through global financial markets. The stock market experienced a significant drop, with the Dow Jones Industrial Average falling over 1,000 points and the S&P 500 index down nearly 3% during mid-day trading. Concurrently, the dollar hit a three-year low.
The Federal Reserve was established as an independent entity, and many economists believe that central banks free from political influence are better equipped to manage inflation. An independent Fed can take necessary but unpopular actions, such as raising interest rates, to control price increases. The interest rate on 10-year Treasuries has been climbing as Trump implements aggressive tariff policies and continues to criticize the Fed and its chair. The rate increased again on Monday to 4.37%. Typically, when stock prices fall and Treasury yields rise, investors purchase U.S. government bonds, which lowers the yield. In this instance, however, investors seem to be steering clear of U.S. markets due to perceived heightened risks.
Trump also criticized the Federal Reserve chair for being “too late” in adjusting interest rates. The chair and other Fed officials have previously admitted to delaying interest rate hikes when inflation began to rise in 2021. Currently, the chair has emphasized that the Fed faces a potentially challenging scenario. Trump’s tariffs could exacerbate inflation, prompting the Fed to maintain or raise rates. Conversely, the economy could slow due to tariffs, a situation the Fed would typically address with rate cuts. The chair has explained that the Fed’s tools cannot simultaneously handle both scenarios, leading them to adopt a wait-and-see approach as the tariff policies unfold.
Trump’s assertion that he could dismiss the Fed chair if desired, despite the potential for a legal battle reaching the Supreme Court, has sparked debate. The chair has stated that the president lacks the authority to remove him and affirmed his intention to serve out his term until May 2026. Kevin Hassett, director of the White House’s National Economic Council, mentioned that Trump’s team is continuing to examine the matter, accusing the chair of political motivations. Trump accused the Fed chair of cutting rates to benefit political opponents, referencing rate reductions in late 2024, which were enacted as inflation cooled and employment concerns arose.
Amidst the controversy, certain political figures have expressed support for the Federal Reserve’s independence. Republican Senator John Kennedy from Louisiana emphasized the importance of an autonomous Fed and questioned the president’s right to remove its chair. Additionally, Austan Goolsbee, president of the Federal Reserve’s Chicago branch, warned that compromising the Fed’s independence could result in detrimental economic consequences. William English, an economist and former senior Fed staffer, cautioned that Trump’s critiques might lead to adverse outcomes, such as heightened inflation.
