President Trump's aggressive rhetoric against the Federal Reserve chair, Jerome Powell, and his implementation of significant tariffs pose a substantial threat to the US economy. Trump's public criticism of Powell and his threat to remove him if the Fed doesn't lower interest rates are highly unusual, potentially jeopardizing the Fed's independence and market confidence.
Trump's tariffs, particularly the 145 percent tariff on goods from China and a 25 percent tariff on certain Canadian goods, have severely impacted various sectors. These tariffs, representing the highest effective rate since 1901, are causing harm to farmers, small businesses, and consumers, dampening investment and potentially causing a recession. Forecasters estimate these tariffs will reduce GDP growth by one percentage point and eliminate hundreds of thousands of jobs.
The resulting diminished growth outlook and plunging stock prices (S&P 500 down 14 percent since Trump's re-election), coupled with the decline in Treasury bond prices, reflects a loss of investor confidence in the US economy. This is leading to increased borrowing costs and slower long-term growth.
The Federal Reserve, under Powell's leadership, is maintaining a cautious approach. They held interest rates steady in March and anticipate minor adjustments based on the performance of the labor market. However, political interference from Trump could significantly disrupt the Fed's ability to manage the economy effectively.
Trump's potential removal of Powell and appointment of a political appointee could lead to chaotic economic consequences. This could involve a financial crisis, recession, permanently lower growth, and the erosion of American financial market hegemony. The article concludes that eliminating the tariffs and allowing the Fed to operate independently would create the most stable economic path.