Data provider and news agency Bloomberg has developed an index that helps to put US President Donald Trump’s recent critical comments on the US Federal Reserve and its leadership into context. Lessons can be drawn from the evolution of this index.
Typically, the White House does not comment on what the US Federal Reserve (the Fed) does or says, thus respecting the central bank’s independence – economic literature substantiates this.
Put simply, it is clear to many that an independent central bank is more effective in fighting inflation. Financial markets have more confidence in independent central banks.
So, what if the White House does provide feedback? Even before he returned to the White House this year, Donald Trump made it clear that he would not renew Fed Chair Jerome Powell’s mandate after his term ends in May 2026. More recently, in a precautionary move after markets began to show signs of concern, he confirmed that he would not remove Powell early.
Jerome Powell was appointed Chair of the Fed by President Donald Trump during his first mandate in 2018. In November 2021 he was reappointed by now former President Joe Biden.
Since then, Donald Trump has criticised Powell for lowering policy rates before the November 2024 presidential election to ‘favour the Democratic candidate’ and for leaving monetary policy unchanged since the start of the year. He also harshly labelled the Fed Chair “Jerome Too late Powell”.
Faced with such barbs, Powell has maintained his composure, but the presidential gibes have agitated financial markets, adding to investors’ nervousness. Investors have started to worry about the outlook for the US dollar and the $28 trillion US Treasury market should the Fed’s independence come to an end.
staUsing lexical analysis tools to measure ‘uncertainty’ as expressed in press articles, the graph below shows the monetary policy sub-category of the US Economic Policy Uncertainty index.
While we could label the environment since President Trump’s ‘Liberation Day’ proclamation of tariffs as exceptional – it does not, so far, look like a crisis.
In contrast, one could argue that Black Monday 1987, the 9/11 attacks, and the COVID pandemic caused market crises or shocks. Yet, there was less uncertainty around Fed policy then than there is today.
The Fed’s wait-and-see stance in the wake of the rising uncertainty over growth, employment and inflation in the US in the wake of the tariff turmoil may mean that further rate cuts will be delayed.
Nevertheless, we believe the tone of policymaker comments still points towards additional easing.
The transcript of Chair Powell’s press conference on 7 May is accurate, including even a slip of the Chair’s tongue:
“Our policy rate leaves us well positioned to respond in a timely way to potential developments. That’s where we are; and that — depending on the way things play out, that could include rate hikes — sorry, rate cuts”
Fingers crossed this was just a slip of the tongue and not a Freudian slip foreshadowing a pivot!
