AWANI Tonight: Wall Street ends sharply lower amid Trump's rant against Powell

8 months ago

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.

Transcript

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.

AWANI Tonight: Wall Street ends sharply lower amid Trump's rant against Powell

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