At the cost of a triple hit on stocks, bonds, and currencies, is Trump "losing his mind" for fiercely criticizing Powell?

Trump blasts Powell, aiming to find a scapegoat for a potential economic recession.

After criticizing Powell last Thursday and Friday, Trump again attacked Powell this Monday, urging him to cut interest rates immediately, or else the economy will slow down. U.S. assets experienced a "Black Monday" again on Monday, with a "triple kill" in stocks, bonds, and currencies.

In other words, if the Federal Reserve continues not to cut interest rates, Trump is likely to blame any economic weakness caused by the trade war on the Federal Reserve.

More controversially, he accused the Federal Reserve of cutting interest rates last fall to influence the 2024 election, believing that the rate cuts at that time were meant to help "Sleepy Joe" Biden. Analysts suggest that Trump's implication is that the Federal Reserve has become politicized, willing to assist the Biden administration but unwilling to provide him with the same support.

This statement also reinforces Trump's long-held view: the Federal Reserve should be more responsive to the president's wishes. In the future, he is likely to attempt to undermine the legitimacy of the Federal Reserve as an independent institution, thereby damaging the effectiveness of its policies.

Even without firing Powell, the Federal Reserve's credibility is likely to suffer

Analysts point out that even if Trump ultimately does not remove Powell, his fierce criticism of Powell will still cause long-term damage, undermining the non-political and technocratic image that the Federal Reserve has long sought to maintain.

Peter Conti-Brown, a Federal Reserve historian at the University of Pennsylvania, stated:

"This is a real disaster for the Federal Reserve. The authority and maneuverability of the Federal Reserve come from bipartisan recognition of it as a fair actor."

Conti-Brown believes that Trump's latest attacks are different from those in 2018-19. In 2018, Trump aimed to solidify a small faction of staunch supporters within the party by criticizing Powell; now, this faction has become the dominant force within the party, making Senate Republicans potentially less willing to defend the Federal Reserve.

Wall Street still "stands by" the Federal Reserve, but the market faces new uncertainties

However, Wall Street economists generally believe that the Federal Reserve's decision to cut interest rates last year and its current "wait and see" approach are reasonable responses to actual and expected economic developments, rather than political considerations.

Media reports also point out that Trump's accusations overlook several key facts: Powell was appointed by Trump in 2018, he closely collaborated with the Trump administration during the pandemic in 2020 to provide unprecedented support, and the Federal Reserve has raised interest rates significantly in 2023 to reduce inflation, which may lead the Biden administration to face an economic recession.

Neil Dutta, head of economic research at Renaissance Macro Research, noted:

"The Federal Reserve's rate cuts last year were not to help Biden, but to assist a labor market that was actually slowing due to high interest rates."

Dutta predicts that due to Trump's unpredictable trade policy announcements, the economy may fall into recession this quarter, and the Federal Reserve is almost powerless to address this

"Once confidence begins to erode, it is very difficult to restore it to its original state."

There are concerns that Trump may disregard verbal condemnation and legal constraints to directly fire Powell. If the Federal Reserve concedes in this power struggle, it will face a deeper institutional credibility crisis and may even become a tool of the president's economic policy.

This will lead to a shake in investor confidence in the federal government, adding more uncertainty to the market, and Monday's market reaction is likely just the beginning.

Former Senate Banking Committee Chairman Phil Gramm warned:

"The president has already created tremendous uncertainty in international trade policy, forcing every American business to figure out what his policies are, and the threat to fire Powell would create a whole new level of uncertainty."