Why Trump keeps attacking the US central bank

Central Bank

Economic

Summary:

Trump keeps attacking Federal Reserve Chair Jerome Powell over interest rate policies, raising concerns about Fed independence and market stability, despite later softening his stance under political and economic pressure.

US President Donald Trump has some well-known nemeses: illegal immigrants, low-flow showers and last, but definitely not least, the head of the US central bank.

Elevated by Trump to lead the Federal Reserve starting in 2018, Jerome Powell almost immediately found himself under fire - described on social media as a bonehead and questioned about reports that the president wanted him gone.

But however uncomfortable Powell might have been then, his position has only gotten worse.

Not only is he overseeing an economy where the risk of recession is rapidly rising, Trump has been flirting publicly with his removal, writing on social media last week: "Powell's termination cannot come fast enough!"

Coming at a time when Trump has pushed to expand presidential power, while cowing political opponents and ploughing past judicial efforts to check his action, it has raised alarm that he is more serious about, and might be more able to, exert control over the Fed than during his first term.

The tensions cooled this week, when Trump, a day after a market slide that some analysts tied to the comments, denied to reporters that he ever had any intention of firing Powell.

It came amid other hints of de-escalation in Trump's economic rhetoric as his policies, especially trade tariffs, have faced rising political and business backlash.

But Trump did not offer much assurance that he would limit his interventions at the Fed, maintaining his right to have a view and noting that he might call Powell to discuss his concerns about the bank's interest rate policy.

Donald Kohn, a senior fellow at the Brookings Institution and the former vice chair of the Federal Reserve, said the shift in tone appeared intended to calm financial markets but he did not think it marked the end of a fight over the Fed, an institution considered vital to the health of the world's largest economy.

"It's a testimony to the market's response," he said. "But I think it's way too soon to say that there's a stability there."

What is Trump's problem with Powell?

Trump's clash with the Fed is ostensibly rooted in differences over where the bank should fix its key interest rate, which plays an influential role shaping borrowing costs for credit cards, mortgages and other loans.

Lower rates make it easier to borrow and tend to deliver an economic boost. Higher interest rates dampen activity, helping to keep prices stable.

Trump, who cut his teeth professionally taking out loans as a property developer, has long confessed to liking a low interest rate policy.

He objected when the Fed raised rates in his first term and has been pushing Powell to cut them now, arguing that inflation has cooled and keeping rates too high could do unnecessary economic damage.

"There can be a SLOWING of the economy unless Mr. Too Late, a major loser, lowers interest rates, NOW," he wrote on social media earlier this week, referring to Powell.

A threat to Fed independence?

Trump is hardly the first politician to cast the bank as a scapegoat at a moment of economic turmoil - or to press for lower interest rates.

Nor is he alone in his criticism of Powell, who infamously initially dismissed post-pandemic price inflation as "transitory" and has been faulted for being too focused on backward-looking data.

His pressure on the bank, however, breaks with Washington tradition in recent decades of presidential deference to the Fed.

It has drawn comparisons to former President Richard Nixon, who pushed his Fed chairman to loosen its policies ahead of the 1972 election, moves later blamed for feeding the high-inflation, low-growth "stagflationary" dynamic of that decade.

The idea that Trump could exert control over the Fed elicits horror among many economists, who say history is littered with examples of countries where political interference at central banks led to spiralling prices and economic ruin.

Sarah Binder, professor at George Washington University and a scholar of the Federal Reserve, said confidence in Fed independence is key to maintaining market faith that inflation will be controlled.

If shaken, it could lead to higher borrowing costs for everyone, as investors demand higher interest rates for holding debt, she warned, noting that should the Fed eventually cut rates, it is likely to spark speculation about Trump's influence - regardless of how, if at all, it played into the decision.

"That's ultimately the problem. It is perceptions of independence that really matter and that's what the pernicious effects of the attacks are they do raise doubts about whether the Fed can be as stalwart as central bankers want to be," she said.

Can Trump fire Powell?

Joe Lavorgna, chief economist at SMBC Nikko Securities, who served on the National Economic Council during Trump's first term, said he saw little need for Trump to dial back his attacks, noting that he was making a "very classic macro argument" about the bank's flaws.

"I'm completely on board with the president's sympathies or comments that the Fed has historically been late," he said, adding that he thought stock market falls had been driven primarily by questions about trade policy.

He said he believed that Fed officials would remain more responsive to financial conditions than the president, noting that, if anything, Trump's pressure could make it more hesitant to cut, lest it be perceived as being cowed.

"Ultimately the Fed is going to do what's prudent," he said. "The question is just the timing."

Powell, a longtime Washington lawyer whose term as chair is due to end next year, has maintained that he is unbothered - and uninfluenced - by the criticism and asserted that Trump does not have the legal authority to remove him.

But the strength of his position is a matter of legal debate.

By law, Fed governors can only be removed for cause, but it is unclear whether that protection extends to the role leading the board.

The administration has already taken steps to reduce the Fed's regulatory role and is engaged in a legal battle over expanding presidential authority over other government agencies set up with features, like for cause protections, intended to insulate them from partisan pressure.

Mark Spindel, founder and chief investment officer of the Washington-based investment advisory firm Potomac River Capital, who has worked with Prof Binder on Fed studies, noted that the tradition of Fed "independence" had evolved over time, often after political or economic crisis.

"Things that are given can be taken away," he said, hours before Trump appeared to back off.

Asked again for his thoughts a few days later, Mr Spindel wrote back just two words in reply: "Damage done."

Source: bbc

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Kevin Du

Economic

The change in the most senior official who helps oversee U.S. ties with Europe at the State Department comes at a time when Washington is managing an increasingly tense relationship with the continent as President Donald Trump says he wants to take over Greenland, pressure allies on NATO spending and end Russia's war in Ukraine.

It is also the latest change as the Trump administration has proposed a major overhaul of the State Department aimed at ensuring the agency faithfully implements Trump's "America First" priorities.

Louis Bono, a senior foreign service officer who was appointed as senior bureau official in the department's Bureau of European and Eurasian Affairs when Trump took office in January, wrote to staff on Friday that Brendan Hanrahan would be taking over the role.

"Brendan brings valuable experience from the private sector and the Senate, where he served on the secretary's staff, making him well poised to lead the bureau through the reorganization and to successfully advance the Secretary's agenda throughout Europe and beyond," Bono wrote in an email on Friday seen by Reuters.

It was not clear what role Hanrahan had in Rubio's Senate office and how long he worked there, or whether he has direct experience working on foreign policy.

Hanrahan's new title of "senior bureau official" typically suggests an appointment for an interim period.

The SBO position serves in an acting capacity when an assistant secretary, a Senate-confirmed position, is yet to be named. It was not immediately clear whether Hanrahan was brought in for a temporary period or for longer.

The State Department did not immediately respond to a request for comment.

PRIVATE SECTOR EXPERIENCE

Two State Department officials, who requested anonymity, said they had been told Hanrahan joins the department from Bain Capital and said staff were concerned about his apparent lack of relevant experience.

A LinkedIn page belonging to Brendan Hanrahan and listing Bain Capital as his employer had been taken down on Friday.

A biography on Bain Capital's website that has been deleted but was saved last year by the Wayback Machine says he joined the firm in 2017 and worked on its private equity team. He was previously a consultant at McKinsey and Company, according to the now-deleted biography.

The State Department position that Hanrahan will be filling for the moment typically plays a front and center role in Washington's dealings with European countries including Ukraine and also Russia.

Since Russia's full-scale invasion in Ukraine began in February 2022, State Department officials serving in that role have been instrumental in Washington's diplomacy with Europe and in managing relations with Russia. Those officials were almost always Senate-confirmed.

The administration's negotiations with Russia have so far been led by Trump's special envoy and his close friend Steve Witkoff, who has made his fourth visit to Moscow on Friday since Trump took office to meet with Russian President Vladimir Putin.

There has already been growing concern across some European officials that the Russians are taking advantage of the lack of experience by the U.S. negotiating team. Witkoff is a real estate billionaire who had no diplomatic experience before joining Trump's team in January.

Since taking office in January, Trump has upended U.S. foreign policy, pressing Ukraine to agree to a ceasefire while easing many of the measures the Biden administration had taken to punish Russia for its invasion of its neighbor.

Reporting by Simon Lewis; Additional reporting by Daphne Psaledakis and Humeyra Pamuk; Editing by Nick Zieminski and Daniel Wallis

Source: Reuters

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Michelle Reid

Central Bank

Cryptocurrency

Martin Schlegel, the head of the Swiss National Bank (SNB), has rejected the idea of diversifying the country's reserves with Bitcoin, Reuters reports.

Schlegel has stated that the leading cryptocurrency is unable to fulfill the existing requirements for its reserves, pointing to its high volatility.

A new initiative was announced in December to amend the Swiss constitution in order to diversify the bank's assets with Bitcoin.

In order to be considered by the country's parliament, the initiative will have to collect a total of 100,000 signatures before June 30.

Back in 2021, a similar initiative failed, but Bitcoin advocates are hopeful that the momentum created by the pro-crypto U-turn in the US could carry over to Switzerland.

Switzerland is known as one of the most crypto-friendly countries in the world, but it might not go as far as amending its constitution to buy Bitcoin.

The total value of SNB's reserves stands at more than $900 billion. Foreign exchange reserves, which are diversified across the U.S. dollar, the Japanese yen, and other currencies, account for the majority of them. The bank's gold reserves stand at $94 billion.

No domino effect

After the US established a strategic Bitcoin reserve in March, some Bitcoin advocates expected that this would kickstart the domino effect, with other major economies following suit. However, major economies like Japan have refrained from embracing Bitcoin. European Central Bank (ECB) President Christine Lagarde categorically rejected the idea of EU central banks adding Bitcoin to their reserves.

It is now clear whether the US itself will purchase Bitcoin, given that the much-hyped SBR will initially contain only forfeited coins.

Source: CryptoSlate

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Thomas

Economic

Forex

“If you look at other crises, if you look at the global financial crisis, or Covid actually, Lehman, the dollar depreciated after those events as well, and then ultimately rallied,” Greene said in an interview with the Atlantic Council in Washington on Friday. “We’re not seeing textbook economics play out here necessarily, but there is some precedent for that.”

The dollar’s decline since Donald Trump launched an all-out trade war earlier this month is seen as unusual as the US currency has historically been a safe haven during times of turmoil. It has even prompted warnings that its world reserve currency status may be under threat, a notion dismissed by BOE Governor Andrew Bailey.

Greene said that it is “too early” to say where the dollar will settle, underscoring how she and other policymakers remain wary over endorsing the view that the trade war will be disinflationary for the UK and push them into a quicker policy easing. Any dollar rebound would push up the cost of imports for the UK.

Greene said that exchange rates will be a key factor in her thinking ahead the BOE’s next interest-rate decision due to be announced on May 8. Money markets are fully pricing in a quarter-point reduction, with two or three more by the end of the year.

“What it really comes down to is probably exchange rates,” she said. “The trade-weighted sterling exchange rate index, it hasn’t moved as much as you might expect, but a lot comes down to what you think will actually happen with the dollar. If it continues to depreciate, then that would, on balance, be disinflationary for the UK economy. If it rallies, then the opposite would be the case.”

The BOE’s trade-weighted pound index is up 0.8% since the start of the year with sterling’s strength against the dollar being partially offset by weakness versus the euro. The pound has jumped over 6% against the dollar this year and fallen 3% against the euro.

Source: Bloomberg Europe

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Grace Montgomery

Economic

Stocks

Shares of Tesla (TSLA 8.32%) are climbing on Friday. The electric vehicle (EV) maker's stock had gained 8.7% as of noon ET. The rise comes as the S&P 500 was mostly flat and the Nasdaq Composite rose modestly.

What's fueling the optimism? Late yesterday, the Trump administration announced regulatory changes that could help Tesla achieve its self-driving ambitions sooner.

Relaxing the rules

The Transportation Department announced it will loosen some of its rules to help U.S. automakers deploy self-driving cars more quickly. The administration appears eager to beat China in a race to develop the next-gen technology. The new rules allow for exemptions from certain federal standards for safety testing, and crash reporting requirements for self-driving software will be streamlined.

"We're in a race with China to out-innovate, and the stakes couldn't be higher," Trump's transportation secretary, Sean Duffy, wrote in a statement, claiming the rule changes will "slash red tape and move us closer to a single national standard." Investors appeared to believe the new framework will speed up Tesla's full self-driving timeline.

Make or break?

The announcement comes at a critical time for Tesla. The company has seen its sales plummet across key markets even as EV sales at large are on the rise. In the company's recent earnings call, Elon Musk said he would devote more time to his duties as CEO after investor discontent grew; many view his role in the Trump administration as taking away from his ability to effectively lead Tesla. And there's been consumer backlash to Musk's government-cutting moves.

Tesla is facing increased competition from Chinese EV makers like BYD as well as legacy carmakers. It appears that the early dominance Tesla once enjoyed has eroded, but delivering on Musk's long-standing promise of full self-driving abilities in Teslas would undoubtedly help the company regain an edge. The question is when will this happen. I'm not convinced it will be anytime soon, and I continue to think the stock is overvalued.

Source: The Motley Fool

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Adam

Commodity

Futures Pressured by Bearish Inventory Data and Weak Demand

Daily Natural Gas

U.S. natural gas futures are slipping lower as traders respond to bearish storage data and a lack of weather-driven demand, with technical factors adding further pressure. Prices are testing the critical 200-day moving average at $2.906, a level that is dictating the broader trend, and risks remain skewed to the downside.

At 13:42 GMT, Natural Gas Futures are trading $2.883, down $0.047 or -1.60%.

Is Technical Pressure Signaling a Deeper Pullback?

The daily chart suggests ample room for additional downside movement, with the next significant support level marked at $2.199. Immediate resistance is seen at the 61.8% short-term retracement level of $2.995. A break above this could spark short-covering activity, but upside momentum would likely stall near the 50% retracement at $3.361. Until a clear reversal forms, price action remains vulnerable to further selling.

How Did the Latest EIA Report Rattle the Market?

Thursday’s EIA report fueled selling after a much larger-than-expected storage build. Inventories for the week ended April 18 surged by +88 Bcf, sharply above the consensus estimate of +75 Bcf and the five-year average build of +58 Bcf. This sizable increase came even as total stocks remain -20.2% lower year-over-year and -2.3% below the five-year seasonal average, underscoring tight overall supply but overshadowed by the near-term bearish build.

Could Renewable Energy Trends Keep a Lid on Prices?

Strong wind and solar generation were cited as major factors behind the weak drawdown in natural gas inventories. As renewable output expands, natural gas demand for power generation continues to face intermittent headwinds, particularly during mild weather periods. This dynamic weighed heavily on sentiment after the bearish EIA miss.

What Role Is Weather Playing in Suppressing Demand?

Weather forecasts through April 30 project near-ideal conditions across most of the U.S., with highs ranging from the 60s to 80s, and localized 90s across the southern states. With only light to very light national demand expected, near-term fundamentals offer little support to prices. Mild conditions reduce both heating and cooling loads, directly limiting natural gas consumption.

Market Forecast: Bearish Bias Prevails

Given the combination of bearish EIA data, weak weather-driven demand, strong renewable generation, and bearish technical signals, the short-term outlook for natural gas remains bearish. Traders should watch the $2.906 technical level closely, but a failure to hold above it opens the door for a deeper correction toward $2.199 support.

Natural Gas Price Outlook – Natural Gas Continues to See Sellers

The natural gas markets continue to look a bit negative overall, as we are out of the seasonal bullish pressure from heating demand. At this point, I continue to look at it as a “sell the rally” scenario. This is a cyclical market move that I see happen almost every year.

Natural Gas Technical Analysis

The natural gas market has seen quite a bit of negativity during the early hours on Friday as we continue to see traders price in the idea of a potential slowdown in demand when it comes to natural gas as the temperatures in the United States and the temperatures in Europe, of course, start to climb now that we are out of winter. Furthermore, you have to question whether or not there will be as much demand for electricity as there once was due to the potential recession that seems to be looming out there. If that’s the case, demand will fall as well.

With that being the case, I think this is more of a “fade the rally” type of market. And now that we are below the $3 level, I find that very interesting as well, due to the fact that there are just too many things lining up at the same time that have broken below this major $3 level. And for me, that is a sign that we are going to fade into the lower levels that we spend quite frankly, most of the year. Rallies, I think, are going to continue to offer selling opportunities to at least the 200 day EMA, if not even as high as $3.50. I have no interest whatsoever in buying natural gas as it has a lot of troubles this time of year. Ultimately, this is a market that I think will continue to drive itself lower.

Source: fxempire

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Adam

Economic

President Donald Trump’s unprecedented tariffs, particularly on China, and recent attacks on Federal Reserve Chair Jerome Powell caused alarm among some of his top advisers and America’s biggest CEOs, who warned of financial chaos and store shelves that could go bare, people familiar with the conversations said.

The warnings — and the markets’ own volatility this week — seemed to have broken through. Trump backed down Tuesday from his threats to try to remove Powell from the job, telling reporters in the Oval Office: “I have no intention of firing him.”

That prompted sighs of relief on Wall Street. A day after markets boomed on comments from Treasury Secretary Scott Bessent that Trump would seek to de-escalate the trade war with China, US markets gained again on Wednesday.

Top administration officials were also relieved by Trump’s Oval Office statement on Powell, the people familiar with the matter said. The officials had become unnerved by the heated rhetoric and wary of a prolonged legal battle should Trump attempt to unseat the Fed chair.

The Dow closed higher by 420 points, or 1.07%. The broader S&P 500 gained 1.67% and the tech-heavy Nasdaq Composite rose 2.5%.

The three major indexes held on to a rally but finished well below their highest levels of the day. The Dow surged nearly 1,200 points in the morning before pulling back: Stocks came off their highest levels after Bessent cautioned that it could take considerable time to rebalance trade between the United States and China.

There is a “2 to 3-year timeline for the full rebalancing,” Bessent told a group of reporters on Wednesday after delivering a speech at an event hosted by the Institute of International Finance, a person familiar with the matter confirmed to CNN.

The comments, previously reported by Bloomberg News and CNBC, underscore how obstacles remain even as investors are eager for trade agreements and CEOs seek clarity on tariffs.

White House press secretary Karoline Leavitt on Wednesday said on Fox News there will be “no unilateral reduction in tariffs against China.”

“The president has made it clear China needs to make a deal with the United States of America, and we are optimistic that will happen,” Leavitt said. “And when that continues, it will be up to the president what the tariff rate on China will be.”

Trump on Wednesday told reporters that his administration will get a “fair deal” with China on trade, adding more broadly that negotiations with countries “are going very well.”

When Trump was asked in an impromptu gaggle outside the White House if he was talking to China actively, he responded: “Actively. Everything’s active.”

“Every country wants to partake, even countries that have ripped us off for many, many years. China is an example, but it’s not just China, European Union. They ripped us off for many, many years, and those days are over,” he added.

US Treasury bonds initially rallied Wednesday before giving back those gains in a stark reversal. The benchmark 10-year yield fellow below 4.3% in the morning before rising back up to almost 4.39%, just below where it had settled Tuesday. Yields and prices trade in opposite directions.

Trump shifts tone after meeting with CEOs

Trump’s notable shift in tone toward Powell and China came a day after he met privately in the Oval Office with chief executives of four major US retail companies who conveyed concerns about rising economic fallout from Trump’s tariff policy and the uncertainty it has created for financial markets.

The CEOs of Walmart, Target and Home Depot, all of whom delivered a blunt message about interruptions in the supply chain and its effects on consumers, were invited to the White House as part of an ongoing internal campaign to make the case to Trump about the real-world impact of his policies, administration officials said.

Trump’s tariffs have placed significant pressure on the retail sector. The business leaders warned that store shelves across America could “soon be empty,” two people familiar with the meeting said, as they presented a dire economic picture that could come into sharper view within weeks.

For weeks, White House chief of staff Susie Wiles and other senior advisers have been fielding alarming calls from business leaders about the fallout from Trump’s tariff policies and his ongoing threats to fire the chairman of the Federal Reserve. Taken together, the president’s words have rattled markets and shaken confidence in the administration’s stewardship of the economy.

Bessent, who has emerged as one of the leading Cabinet officials whose words have calmed financial markets, played a key role in arranging the meeting of CEOs, officials said, as part of an effort to show Trump how serious the economic challenges facing the administration have become.

Doug McMillon, the CEO of Walmart who has developed a cordial relationship with Trump through meetings at Mar-a-Lago and several mutual friends, bluntly told Trump that the trade war with China had already started to disrupt the supply chain, officials said, and would only intensify by summer.

Axios first reported the fallout from the president’s meeting with CEOs.

Bessent urges caution on Powell

Many Trump advisers did not ultimately believe the president would attempt to fire Powell, given the warnings he’d been receiving from his economic team — including Bessent — stretching back several months.

And Trump had seemed to absorb the notes of caution.

But his amped-up rhetoric over the past week had caused fresh uncertainty about his intentions — in particular, his message on social media Thursday that Powell’s “termination cannot come fast enough!” and his follow-up Monday calling Powell a “major loser.”

Trump has argued that the Fed should cut rates soon to speed up the economy, perhaps as a way to counteract the significant economic drag that his massive tariffs are expected to create. But Powell has said repeatedly the Fed will only make a decision to raise or lower rates after careful consideration and would not rush a decision or issue an emergency rate cut before the rate-setting committee’s next scheduled meeting in May.

White House press secretary Karoline Leavitt continued Trump’s line of attack Tuesday in a press briefing, in which she defended the president for criticizing the Fed. She suggested that the Fed’s action to lower rates in the late stages of the Biden administration — but not (yet) under Trump — could be political. There is no evidence the independent Fed is taking a political stance, and Powell has vehemently and repeatedly denied suggestions that the Fed plays politics when making its monetary policy decisions.

“The president believes they have been making moves and taking action in the name of politics rather than the name of what’s right for the American economy,” Leavitt said prior to Trump’s Oval Office comments. “The president has the right to express his displeasure with the Fed and he has the right to say he believes interest rates should be lower.”

Trump’s top economic adviser Kevin Hassett also told reporters the White House was studying whether Trump could fire Powell, and said a potential “new legal analysis” might ease market concerns. That represented a break from Hassett’s prior comments in support of the central bank’s independence.

Leavitt said Tuesday that Hassett had recently changed his mind on the Fed after Powell insisted the central bank wouldn’t rush a decision to cut rates.

“I also spoke to Kevin Hassett about the Fed as well and he has called into question the Fed’s independence and whether they are actually doing things out of the best interest of the economy or are they doing it for partisan reasons,” she said.

But White House officials had long determined that firing Powell would spark legal challenges and market tumult.

And if any study was actually underway, Trump suggested Tuesday it wasn’t necessary. He said in the Oval Office he “never did” have any intention of removing Powell from the job.