US President Donald Trump has upset the world’s markets and shaken confidence in the US dollar with his latest criticism of Federal Reserve Chair Jerome Powell and indication that he would appoint a successor earlier than usual. The dollar has fallen to its lowest in three years.
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With his latest salvos at Federal Reserve Chair Jerome Powell and reports to planned intervention, US President Donald Trump has upset global markets and shaken the confidence in US dollar.
Trump on Wednesday called Powell “terrible” and said he has three to four replacements in mind.
The Wall Street Journal separately reported that Trump is considering announcing Powell’s successor as early as September or October whereas such announcements are usually made only January as Powell’s term would end next May.
“I know within three or four people who all I’m going to pick. He goes out pretty soon, fortunately, because I think he’s terrible,” said Trump.
Trump has been bashing Powell since assuming office as the Fed has not cut interest rates. Powell has said that the Fed is cautious about rate cuts triggering inflation at a time when prices are expected to go up anyway as a result of Trump’s tariffs. The assault on the Fed’s independence, however, is expected to shake confidence in the US economy as a central bank’s independence is deemed critical for its functioning.
Trump spooks markets with Fed interference
The dollar lost against the euro, pound sterling, Swiss franc, and yen. The euro reached its highest in more than three years and the US dollar fell to its lowest in more than three years.
Climbing to its highest level since November 2021, euro last fetched $1.6805, the Swiss franc climbed to a decade-high, and the Japanese yen climbed 0.35 per cent to 144.70 per dollar, according to Reuters.
“I think it’s a given that Trump’s pick to succeed Powell, when it comes, will be one that sits at the highly dovish end of the spectrum and will support Trump’s agenda of lowering interest rates. The issue with this is it will resurface questions from earlier in the year around the Fed’s independence, which, as we saw, undermines confidence in the Fed and the USD,” Tony Sycamore, a market analyst at IG, told Reuters.
The independence of the Fed, or any other central bank, allows it to make decisions based on economic data and economic rationale as against the populist tendencies of politicians. Such decision-making builds trust among investors and businesses. While a compromised central bank may cut rates to appease populist leaders and risk raising inflation, an independent central bank may handle the situation reasonably.
