Federal Chairman Powell's job safety heightened after Trump's statement of lacking intentions to dismiss him, causing market upward.
Rewritten Article:
Title: President Trump's Stance on Interest Rates: A Bumpy Ride for the Fed and Wall Street
In a surprising turn of events, President Donald Trump on Tuesday softened his stance towards Federal Reserve Chair Jerome Powell, admitting no intention to fire him. After days of lashing out at Powell for not cutting interest rates, Trump now appears to favor a more collaborative approach.
"I've got no plans to fire him," Trump declared to reporters in the Oval Office. "I'd like to see him be a bit more proactive when it comes to lowering interest rates." His change in tone was welcomed on Wall Street, with equity index futures surging by nearly 2% once trading resumed on Tuesday evening. The relief comes after stocks, bonds, and the US dollar took a beating on Monday, following Trump's continuous criticism of Powell over the Easter weekend.
Evercore ISI Vice Chairman Krishna Guha praised Trump's de-escalation, stating, "Whether this is a sneak peek at what's to come or a brief reprieve, it significantly lowers the odds of the worst-case scenarios, such as stagflation and a sovereign debt crisis, although these risks persist."
Trump's optimistic take on a potential trade deal with China also provided a boost for investors, as he expressed hope for "substantial" tariff cuts. However, he qualified this by saying the deal wouldn't "be anywhere near" current tariff rates, adding that "it won't be zero."
The rollercoaster ride over trade tariffs and the federal reserve chair's job has left investors on edge, prompting increased selling of US assets such as stocks, Treasuries, and the dollar.
Trump's tightrope act between threats and rhetoric has been a recurring theme since his first term. While he elevated Powell to the Fed's lead, he became displeased with Powell's ongoing rate increases. Trump hinted at firing Powell but was dissuaded by advisers. His authority to do so is unclear, with some arguing that the Federal Reserve Act of 1913 only allows for removal due to misconduct, not policy disagreements.
The law specifies that the seven Fed governors, appointed and confirmed by the president for 14-year terms, can be removed only for cause – typically interpreted as misconduct, not policy disagreement. Trump's harsh words came alongside court cases challenging his firing of officials from other independent federal boards and agencies. These cases are keeping Fed circles on high alert as potential indicators of Trump's ability to remove Fed officials assumed to be free from political influence.
Despite the reprieve, Trump's criticisms of Powell's rate policy remain sharp. "This is the perfect time to lower the rate," Trump said, "we'd like to see our chairman be ahead of the curve, rather than behind it."
Trump's frictions with Powell can be traced back to his first term, when ongoing rate increases under Powell's tenure irked Trump. His displeasure culminated in musings about firing Powell, but advisers discouraged him. The implications of Trump's stance on interest rate policy are considerable for the US economy and global financial stability.
Enrichment Insights:
Major Implications on the U.S. Economy:
- Interest Rate Cuts and Inflation: Trump's calls for interest rate cuts, despite recent cooling of inflation, highlight his desire for economic growth. However, such cuts could spark inflationary pressures if not handled with care.
- Economic Growth and Investment: Lower interest rates can stimulate economic growth by making borrowing less expensive, potentially increasing investments and consumer spending. This could, however, also lead to asset bubbles and increased debt levels without careful monitoring.
- Trade Policy Impact: Trump's trade policies, including tariffs, have profound consequences for the Fed's decision-making. The Fed is cautiously watching how these policies unfold, which could impact economic stability and growth.
Implications for Global Financial Stability:
- Global Economic Interconnectedness: U.S. monetary policy influences global financial markets. Changes in U.S. interest rates can affect borrowing costs and economic conditions in other countries, potentially destabilizing global economics.
- Currency Fluctuations: Lower U.S. interest rates can lead to a weaker US dollar, causing currency fluctuations in other countries.
- Investor Confidence: The Fed's cautious stance assuages investors, bolstering confidence in the U.S. economy, a critical component of global financial stability.
- In light of President Trump's recent statement about the Federal Reserve Chair's role and interest rates, the future of business policies and legislation, particularly in the context of monetary policy, becomes an important aspect of general news and politics.
- The ongoing tensions between President Trump and the Federal Reserve Chair over interest rate policies could have significant implications not only for the US economy but also for global financial stability, as it affects business practices, investor confidence, and international economic interconnectedness.
