Startling Fed news sends stock market reeling | Global Market News
The S&P 500 opened 2% decrease on April 21 after ending final week down 1.5%. Last week’s losses disillusioned buyers who have been hopeful that stocks may proceed to construct on a bounce-back rally that kicked off when President Trump paused most of the reciprocal tariffs for 90 days on April 9.💵💰Don’t miss the transfer: Subscribe to TheAvenue’s free day by day e-newsletter 💰💵The decline in early motion on Monday could also be partly due to the ongoing spat between President Trump and Federal Reserve Chairman Jerome Powell.While Powell has stored his feedback associated to coverage, President Trump has more and more focused Powell’s reluctance to scale back rates of interest additional.The Fed’s financial coverage switched dovish final fall, with Powell reducing charges in September, November, and December earlier than placing additional charge cuts on maintain amid growing inflation fear.
Federal Reserve Chairman Jerome Powell struggles to steadiness his twin mandate of low inflation and unemployment.Tom Williams/Getty Images
The Fed dangers falling behind the curvePowell’s Fed is backed into a bit of a nook. Its twin mandate is low unemployment and inflation, two usually competing targets. Raising rates of interest can gradual inflation however increase job losses, whereas reducing rates of interest can increase hiring however risk sooner inflation.Related: Billionaire fund supervisor sends hard-nosed message on recession in 2025The dynamic led Powell to say final week, “We may find ourselves in the challenging scenario in which our dual-mandate goals are in tension.”A potential rock-hard-place moment for the Fed has Powell increasingly cautious, fearful that cutting or raising interest rates may have severe consequences. Americans are already pinching pennies because of higher prices over the past three years, and layoffs are rising. While CPI inflation has fallen to 2.4% from above 8% in 2022, it remains above the Fed’s 2% target, and newly instituted tariffs could cause inflation to reignite.President Trump’s tariff scheme encourages businesses to move production back to the US. However, import taxes will cause US companies, including retailers, to raise consumer prices or reduce profits.Job market uncertainty is equally concerning. The unemployment rate has slowly moved back to 4.2% from 3.4% at 2023’s low, and Challenger, Gray, & Christmas reports that the first quarter’s 497,000 layoffs were the most in a Q1 since recession-riddled 2009.More Experts
The economy could tilt into recession if the Fed doesn’t prop up the jobs market with cuts. And if the Fed doesn’t slow inflation with hikes, the anchor on consumer spending could also tilt us into recession.A sticky wicket, indeed.President Trump’s frustration with Powell mountsPowell’s hesitancy to cut rates frustrates President Trump, who worries that the tariff’s negative impact on the stock and bond market could cut off key funding necessary to support economic growth.Related: Fed chairman’s hard-nosed message sends S&P 500 reelingThis weekend, President Trump said, “If I want him out, he’ll be out of there real fast, believe me,” in response to a question about Powell’s Fed leadership and rate policy. On Monday, he referred to Powell as “a major loser.”“With these costs trending so nicely downward, just what I predicted they would do, there can almost be no inflation, but there can be a SLOWING of the economy unless Mr. Too Late, a major loser, lowers interest rates, NOW,” wrote Trump on Truth Social.The insistence that Trump can take away Powell earlier than his time period ends subsequent 12 months raises yet one more query for buyers who typically need readability and coverage stability.It additionally runs counter to long-standing Fed independence. Recognizing that the need for price and job stability may battle with politicians’ wishes, the Central Bank was designed to operate independently to keep away from the risk of being swayed from its mission.While Jerome Powell’s feedback reinforce Fed independence and its dedication to the twin mandate, Trump’s growing disagreement over the direction of charges may create extra market volatility.Related: Veteran fund supervisor unveils eye-popping S&P 500 forecast
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