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President Donald Trump has set his sights on Jerome Powell, the Federal Reserve Chairman, as the economy shows signs of trouble. Trump is frustrated with Powell’s reluctance to lower interest rates, which he believes would help stimulate economic growth.
Many, including Powell—whom Trump has labeled “Mr. Too Late”—see the root of the problem lying with Trump himself, who has wielded tariffs like mere accessories rather than serious economic tools.
The administration seems to be navigating these discussions as if they are not entirely one-sided, attempting to frame Trump’s and Treasury Secretary Scott Bessent’s statements as part of a coherent policy strategy. For a President who closely monitors the stock market, the concerns raised by investors are particularly significant.
Since Trump took office, the stock market has seen a decline, bond markets are facing volatility, and the dollar has weakened. Recently, the International Monetary Fund revised its recession forecast, increasing the likelihood from 25% to 37%. In stark contrast, a recent Gallup poll reveals that 42% of Americans feel the economy is already in a recession or depression.
This backdrop explains why Trump has softened his earlier aggressive rhetoric, asserting he has “no intention” of dismissing Powell just days after he proclaimed, “Powell’s termination cannot come fast enough!” The legalities surrounding a President’s ability to remove the Fed chair remain murky, but the mere suggestion has rattled the markets.
Meanwhile, Bessent spoke at a private event hosted by JPMorgan Chase, expressing hope regarding a potential resolution to the trade conflict with China. U.S. tariffs have increased imports by 145%, prompting China to retaliate with tariffs of 125%. “Neither side believes the current situation is sustainable,” Bessent noted, comments that quickly circulated and bolstered market confidence. Bloomberg even highlighted the “Bessent Effect,” noting how markets tend to respond favorably to his public engagements.
Here’s a crucial takeaway: investors are in search of stability. This desire is why the U.S. continues to lead in foreign direct investment, with over $5 trillion in assets held by non-U.S. investors. This figure represents roughly 10% of global FDI, according to IMF data.
On Tuesday, Wall Street experienced a boost following comments from Trump and Bessent, but discussions with insiders in Washington reveal that major investors doubt the sustainability of this optimism. Current trends indicate a likely continuation of the downward path. The IMF has also adjusted its U.S. economic growth forecast from 2.7% to a more modest 1.8%. (For context, the economy grew by 2.8% during Biden’s last complete year in office.)
Trump has acknowledged the economic difficulties, yet he continues to shift blame to Powell, who could potentially lower interest rates to breathe life into the sluggish economy. However, such a move poses risks of heightening inflation, a persistent issue. Currently, core inflation—which excludes volatile food and energy prices—is at its lowest level since March 2021.
On Wednesday, Bessent addressed attendees at an IMF-related event in Washington, acknowledging Trump’s typical grievances while trying to reassure the markets.
“The IMF once had a clear focus on promoting global monetary cooperation and financial stability. Now, it seems to be spending an excessive amount of time on climate change, gender, and social issues,” Bessent remarked. He attributed this “mission creep” to the IMF’s failure to do more to maintain global economic stability, often to the benefit of the United States.
In a follow-up meeting with financial journalists, Bessent emphasized the importance of reducing tensions with China; however, he noted that negotiations between the two nations’ leaders are currently non-existent, making it challenging for lower-level officials to negotiate a deal. He also indicated that Trump’s administration would consider it a success if a broad framework could be established, even without a formal agreement.
The White House continues to depict the current economic situation as a temporary setback that will not impede a forthcoming manufacturing boom, as companies are realizing they prefer to invest domestically rather than face import tariffs. In the administration’s view, Powell remains the primary target of their frustrations. White House Press Secretary Karoline Leavitt stated on Tuesday that the Fed is maintaining steady rates “for political reasons rather than what’s best for the American economy.”
Observers of the Fed and its substantial impact on Wall Street are finding that the narrative pushed by the White House does not align with the prevailing realities. As investors brace for the repercussions of Trump’s confrontational stance with the international community, the administration’s fluctuating messages are starting to overshadow their own narrative.
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