On Monday, April 21, U.S. President Trump once again launched a fierce critique against the Federal Reserve, demanding an immediate interest rate cut and sharply accusing Fed Chair Powell's slow response of potentially jeopardizing the U.S. economy. In a post on the social media platform "Truth Social," Trump stated that although the risk of inflation has eased, the economic slowdown in the U.S. is looming, warning that if Powell does not act immediately, America will pay a heavy price. This statement marks Trump's 16th public pressure on the Federal Reserve, drawing wide attention on Wall Street and causing market turbulence.
The intense clash between the President and the Central Bank has sparked deep concerns about the future trajectory of the U.S. economy. The Trump administration believes that rapid rate cuts could alleviate the negative impact of its tariff policy on the economy and avoid a hard landing. However, the Federal Reserve's decision-makers are worried that tariffs might lead to an inflation rebound and think that a hasty rate cut could push inflation back up to 4% or even higher. Therefore, the Fed prefers to adopt a more cautious "wait-and-see" approach.
Chicago Fed President Goolsbee, in an interview with CNBC, stated: "We need to fully assess the ripple effects of tariffs on the supply chain; a hasty rate cut could trigger more persistent inflation." He emphasized that the Fed must proceed with greater caution before making any decisions.
Trump's strong rhetoric immediately caused fluctuations in the financial markets, with the S&P 500 index plummeting by 2% that day, U.S. Treasury yields climbing steadily, and the consumer confidence index dropping to its lowest point in three months. Meanwhile, the latest data from the World Corporate Research show that March's leading indicators fell by 0.7%, with manufacturing weakness and stock market declines creating a dual pressure that has led economists to raise the probability of a U.S. economic recession to 35%.
As the Fed's May 6th rate-setting meeting approaches, the "rate cut game" between Trump and the Fed is increasingly evolving into a major crisis within the U.S. economic decision-making circle. Trump's constant challenge to the Central Bank's independence could threaten not only the stability of the $23 trillion Treasury market but also potentially reshape global investors' trust in the U.S. financial system. Amidst the dual risks of inflationary pressure and economic slowdown, every decision by the Fed will profoundly impact the future path of the U.S. economy, particularly affecting the fate of the U.S. economy in 2024.
