U.S. stocks suffered steep losses as President Donald Trump ramped up his attacks on Federal Reserve Chair Jerome Powell, prompting investors to worry over the central bank’s independence. We speak to Dr. Stewart Nixon from IDEAS for his insights.
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00:00U.S. stocks suffered steep losses as U.S. President Donald Trump ramped up his attacks
00:05on Federal Reserve Chair Jerome Powell. This prompts investors to worry about the central
00:10bank's independence, even as they grapple with the effects of Trump's ongoing erratic trade war.
00:17All three major indexes tumbled, with big losses in the magnificent seven group of
00:23mega-cap growth stocks weighing heaviest on the tech-laden Nasdaq. Trump escalated his
00:29criticism of Powell on Monday, saying the U.S. economy is headed for a slowdown
00:34unless Mr. Too Late, a major loser, lowers interest rates now, in a true social post which raised
00:41concerns over the Fed's autonomy. The Sino-U.S. trade rift deepened after Beijing warned other
00:46countries against striking deals with the United States at China's expense, adding fuel to the
00:52spiralling tariff war between the world's two largest economies.
00:55Now, with U.S. markets buckling under the weight of political interference and economic
01:03uncertainty, the stakes couldn't be higher. What began as volatility triggered by trade
01:09tensions has now morphed into something more systemic, a credibility crisis for the Federal
01:14Reserve, and a confidence test for investors around the globe. Now, as Trump's attacks on
01:19Fed Chair Jerome Powell intensify, calling him names like Mr. Too Late and a major loser,
01:25questions are mounting about the independence of the world's most influential central bank.
01:31Add to that, Beijing's hardening stance on trade diplomacy, and it's clear, we are not just
01:35watching market jitters, we're watching the rules of economic engagement being rewritten.
01:41Now, joining us now for insight and perspective is Dr. Stuart Nixon. He's the Deputy Director of
01:47Research at Ideas. Now, Dr. let's start with the markets. We've seen a sharp sell-off across
01:52U.S. indices, with the S&P 500 down over 12% since the start of the year. What, in your
01:58view, is fueling this volatility? Is it more about Trump's trade and tariff rhetoric, or the
02:04pressure campaign on the Fed?
02:07Yeah, while tariffs are commanding the most attention, market jitters reflect wider uncertainty
02:13from the Trump administration's disruptive and unorthodox approach to economic policymaking
02:18in general. Trump's campaign against Chairman Powell contributes to this uncertainty, providing
02:24a destabilizing force of potentially major consequence. Not only share market losses and
02:30volatility, but U.S. dollar depreciation and U.S. Treasury bond yields and the rises in those
02:37reflect the damage that this uncertainty is doing to investor confidence.
02:40Yeah. So, Trump has now publicly called names towards Jerome Powell, major loser, Mr. Too
02:48Late, for not cutting rates fast enough. How significant is this clash for investors? And
02:53is it undermining confidence in the U.S. Central Bank?
02:58Yeah, hostilities between President Trump and Chairman Powell are jeopardizing long-standing
03:03institutional separation. Trump is not shy in his desire to interfere with the Fed, and the
03:10Fed itself in return is being accused of playing politics. So, in the days between Trump announcing
03:17and pausing his tariffs, U.S. Treasury markets actually came dangerously close to becoming
03:21dysfunctional. Some commentators interpreted the lack of Fed intervention as an episode of
03:27Powell playing politics, or even a game of chicken, if you will, with the Trump administration.
03:33While financial disaster was averted, thankfully, investors are questioning their U.S. asset exposure
03:40amid a rethink of the U.S. as a safe haven economy under this unpredictable administration that Trump
03:47is leading. And also a compromised Fed Reserve, the two go together. That shares and bonds are
03:53retreating together is an unusual and significant development in the global economy that highlights
03:57how uncertain investors are, both about Trump policies and about the Fed's role as a financial
04:03safety net.
04:04Yeah, well, what you raise is there are clearly growing concerns about the independence of the
04:09Fed. Why is central bank independence so crucial? And what could be the long-term consequences
04:14if this perception is eroded?
04:16Yeah, well, Fed independence, by which we mean the Fed is operating separately and not subject
04:25to government orders, is a critical institutional pillar supporting confidence in the U.S. economy
04:30and the functioning of financial markets globally. The Fed exercises monetary policy, it buys and sells
04:37government securities, it's responsible financial system regulation in the U.S., that it operates
04:44without political interference, is important to safeguarding the interests of economic stability
04:50and the U.S. and global peoples. Independent central banks have consistently been found to be
04:58better at exercising monetary policy to support stable long-term economic growth with inflation
05:04contained. Confidence in the U.S. institutions like an independent Fed also underpin the attractiveness
05:11of the U.S. dollar and finance, making it a safe haven for large but low-risk investments.
05:17On your question of perceptions or the actual erosion of Fed independence, if that were to occur,
05:25that would actually require a substantial rethink of how the U.S. economy, its institutions and
05:30governance are understood. Investor confidence in the U.S. could plummet and a global reorganisation
05:36and liquidation of capital is not actually inconceivable. A shock of this magnitude would do both
05:43significant short and long-term damage to the economy, to trust in institutions and the relationship
05:49between markets and politics in the U.S. but also potentially globally. And it bears reminding
05:55that major shocks are particularly harmful to poorer countries, to smaller businesses and to the most
06:01vulnerable households. Yeah. So we would love to speak more about, you know, what's to expect
06:07next. But unfortunately, we'll have to keep on continuing our monitor of the whole situation.
06:14Thank you so much. That was Dr. Stuart Nixon. He is the Deputy Director of Research at Ideas.