TRUMP: Oh, he’ll leave. If I ask him to he’ll be out of there … I’m not happy with him. If I want him out, he’ll be out of there real fast. Believe me.
TRUMP: Yeah, next question.
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— Aaron Rupar (@atrupar.com) April 17, 2025 at 11:52 AM
Trump is not happy with Jerome Powell because the Fed will not lower interest rates because Jerome Powell and everyone with a basic understanding of economics 101 thinks that Trump’s tariffs will raise costs in the short-term due to them being an additional cost that companies always always always pass down to the consumer. If you lower interest rates and then inflation comes back above them, well, you have the 1970s, which is what the Fed has said they wanted to avoid ever since they pivoted after the November 2021 inflation print that changed the world forever. Uncertainty is the buzzword the Fed has leaned on since Trump won, but the divergence of the bond market with the Fed Funds Rate in September told the real story that smart money is positioning around.
Namely short-term inflation and lower growth, what high-level traders bet on last year after Joe Biden’s final presidential debate. Even in Trump’s rosiest scenarios where he does use the threat of economy obliterating tariffs to renegotiate trade deals over the next 90 days and then take them off, no one in their right mind would invest during those 90 days! Why would you build a factory right now when Trump himself is saying that these tariff rates may be lower in the future? No matter what, the near-term damage of people curtailing their spending is done, and this is reflected in the catastrophic economic confidence figures and some signs that consumer spending, the engine of our economy, is slowing. It’s not out of the question at all that entirely due to the uncertainty that Trump’s economic agenda brings, America has already talked itself into a recession. But thanks to Trump’s tariffs, it would be one with higher prices on everyday goods.
When the economy slows, the Fed usually cuts the Fed Funds Rate to try to take some pressure off interest rates to make it easier to borrow to spur growth. This always being the move to juice markets is the one-dimensional way that Trump and every noob on Wall Street sees things even though typically, if the Fed has to slash interest rates, that means nothing good for the economy’s general health. If he fires Powell and the FOMC becomes a bunch of Trump toadies, that is ballgame for confidence in American markets.
The Fed is the most powerful central bank in the world and if its prime mission has been altered from what’s best for markets to what’s best for Trump, then that will further the crisis of confidence in U.S. markets right now (the Fed’s true political impartiality has always been an open question, but Trump clearly wants to take it beyond a point of no return where he sets the Fed Funds Rate).
Sell America is the trade unfolding across the world, the question now is how long this capital flight will last. The selloff in long bonds does not give me confidence that this pivot away from the United States is a short-term one. If Trump turns one of the most powerful independent bodies in the world into just another minion for him, his economic damage may be permanent, as America’s biggest asset–the dollar’s status as the global reserve currency–has never been more in doubt than it is right now. All because of one man and the bleak reality that he is not an aberration in a country proving to the world it is not a trusted partner anymore.
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