US stock markets suffer collateral damage as Trump fires salvos at Fed chief Powell

US President Donald Trump’s tirade against Federal Reserve Chair Jerome Powell plunged the markets on Monday and drove the US dollar to a three-year low.

Trump’s
botched rollout of tariffs and escalating trade war with China had already shaken investors’ confidence in the United States and US dollar. Now, his pressure on the Federal Reserve and personal attacks on Powell have further rattled investors.

In a post on Truth Social, Trump on Monday called Powell a “major loser” and called upon him to cut interest rates. The markets plunged in response to the tirade.

By the end of the trading day, the Dow Jones was down 2.5 per cent, the S&P 500 was down 2.4 per cent, and the NASDAQ was down 2.6 per cent. Most of the major stocks were trading in the red.

Well, at least Monday is over

🔴 Dow: -2.5%
🔴 S&P: -2.4%
🔴 NASDAQ: -2.6%
🔴 Russell: -2.1% pic.twitter.com/pCfiY47oG8

— Morning Brew ☕️ (@MorningBrew) April 21, 2025

Investors reject Trump’s war on Federal Reserve

Investors seek stability, certainty, and the indepdendence of the Federal Reserve.

Not just the markets nosedived on Monday but the US dollar also fell to a three-year low.

Trump wants Jerome to cut interest rates. While investors too prefer lower interest rates, they also prefer the independence of the Federal Reserve. The reaction of Trump’s war on Powell means that investors consider the independence of the Federal Reserve much more important than low interest rates.

While there are several reasons for investors prioritising the Federal Reserve’s independence, the main reason is the ability of an independent central bank to make decisions based on economic data and long-term goals rather than the kind of political pressures that Trump is currently putting. For example, an independent central bank can take unpopular but effective decisions to tackle inflation, such as raising interest rates. On the contrary, a central bank under political control would resort to populism and lead the economy towards a disaster.

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If Trump has his way with the Federal Reserve, then the very purpose of the institution would be over, warned Karl Schamotta, the chief market strategist at Corpay.

“If the central bank’s dual mandate —preserving price stability and fostering full employment— is diluted with a new set of objectives defined by the White House, policymakers could find themselves unable to tighten policy dramatically in the face of a sudden increase in prices,” said Schamotta, according to Reuters.

Separately, 50 Park Investments CEO Adam Sarhan told Reuters, “The fact that we’re down so much today after a long weekend tells me, OK, investors went into the weekend, they looked at the situation, and they see more uncertainty, not less uncertainty. We’re seeing more weakness now in the dollar and gold is at all-time highs, so clearly investors are spooked and fear is taking over.”

US dollar falls as investors move away from US

The weakening of the US dollar against foreign currencies is a sign that investors are diversifying their holdings away from the United States.

As Trump went on a tirade against Powell, the US dollar fell to a three-year low since March 2022.

The US dollar fell to a decade-low against the Swiss franc, the euro surpassed $1.15, and US dollar also hit a seven-month low against Japanese yen, and British pound sterling also rose to its seven-month high at $1.34.

If trade deals that significantly lower the brunt of the trade war are not reached soon, the markets are likely to plunge into recession, according to analysts.

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Euro emerges as new safe haven for cash as Trump tariffs unsettle currency market

“We need to see some good news on the tariff front, especially with our key trade partners. If you get that, I think the market will say, OK, this is a playbook for how this can evolve over the next three months. If you don’t get that, I think the market’s going to have to really start to increase the recession odds on the view that these tariffs are going to be higher and longer implemented than they might have hoped,” Stuart Kaiser, Citi’s head of US equity trading strategy, told Yahoo Finance.

Since January, the US dollar has fallen at least 8 per cent and euro has climbed to a three-year high.

The scale of US dollar’s decline indicates a loss of confidence in the US economy and the US currency, according to James Lord, the global head of foreign exchange and emerging market strategy at Morgan Stanley.

Lord told CNBC last week that bullish perception of the US dollar is fading and investors are looking elsewhere.

“At the beginning of the year, being bullish on the dollar was one of the more popular and consensus trades. That hasn’t worked out very well. I think what’s happening now is reflecting a loss of confidence in the outlook for the US economy, reflecting a huge amount of uncertainty about the outlook for US policy. After a decade of significant inflows into US capital markets, people are looking elsewhere,” said Lord.