It’s intriguing to consider how frequently Donald Trump makes statements that dramatically impact the stock market, only to contradict himself shortly thereafter, prompting a significant market rebound. Perhaps, traders will eventually realize that they cannot trust Trump’s words, as he tends to mislead frequently. This pattern could lead to a more cautious approach in interpreting his remarks, especially in the context of financial markets.
On Monday, Trump labeled Federal Reserve Chair Jerome Powell a “major loser,” reiterating his previous threat from last Thursday regarding Powell’s “termination” for not implementing interest rate cuts swiftly enough. This rhetoric caused the stock market to plummet, highlighting the volatility that Trump’s words can induce in financial markets.
The Federal Reserve operates as an independent entity, a fact that Trump himself acknowledged when he appointed Powell in 2018. Furthermore, there exists a 90-year-old Supreme Court precedent that contradicts Trump’s assertion that “if I want him out, he’ll be out of there real fast, believe me.” Clearly, there are significant legal hurdles that would impede Trump’s attempt to dismiss Powell, not to mention the potential political fallout of such an unprecedented move.
However, in a surprising twist, Trump stated on Tuesday evening that he had “no intention” of firing Powell. During a press conference at the Oval Office, when asked about his plans concerning Powell’s position at the Federal Reserve, Trump firmly replied, “None whatsoever.” This statement triggered a surge in stock futures, suggesting that the market may have more faith in Trump’s retraction than in his initial threats.
This strategy has become a quintessential aspect of Trump’s political maneuvering: make one statement, then quickly pivot to an opposing one. This pattern allows Trump to position himself as correct regardless of the outcome. He can choose to highlight whichever statement aligns with future events while conveniently disregarding those that do not, assuming his supporters won’t scrutinize the inconsistencies.
Personally, I lean towards believing Trump’s latter statement regarding Powell. My rationale is that attempting to oust Jerome Powell would not only be challenging but could also interfere with Trump’s leisure activities, such as golfing. More significantly, he likely understands that a politically manipulated Federal Reserve would pose challenges for him just as it would for others.
The Fed’s role is critical; it can combat inflation by increasing interest rates or stimulate economic growth by lowering them. Trump’s trade tariffs are projected to significantly raise prices for consumers, coinciding with a slowdown in global economic growth due to his ongoing trade war.
It is crucial to note that the Fed cannot effectively fight inflation while simultaneously trying to bolster economic growth. If the Fed were to hasten interest rate reductions, as Trump previously demanded, consumers might face a dual challenge of rising prices due to both tariffs and an overheated economy. Working-class Americans are more likely to notice sharp increases in their everyday expenses rather than a minor slowdown in quarterly GDP growth.
Despite Trump’s vocal demands for the Fed to lower interest rates sooner, I remain skeptical of his true intentions. His background in entertainment leads me to question the authenticity of his statements; after all, “The Apprentice” was hardly a reflection of reality.
In reality, Trump may prefer to maintain higher interest rates for an extended period. This strategy could mitigate some of the inflationary pressures he is imposing on the American working class through his trade policies.
Moreover, should he perceive a decline in support regarding economic issues, he can conveniently shift the blame to the Fed. His core supporters are unlikely to grasp the complexities of the Fed’s operations, enabling him to deflect criticism without facing pushback. Once the Fed does lower rates again, which is anticipated to happen at least once before the year concludes, Trump can tout his previous threats as having compelled the Fed to act.
While I could be mistaken, I genuinely don’t believe Trump will attempt to fire Powell. True to form, he seems poised to navigate the situation in a way that allows him to maintain plausible deniability, trying to have it both ways.
Jonathan Wolf is a civil litigator and author of Your Debt-Free JD (affiliate link). He has taught legal writing, contributed to diverse publications, and committed himself to being both financially and scientifically literate. Any opinions he shares are purely his own and should not be linked to any organization he represents, as he prefers to keep the credit for his insights. He can be reached at <em>jon_wolf@hotmail.com</em>.
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