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US President Donald Trump continued to attack Fed Chair Jerome Powell for not cutting interest rates, sending the DXY Index and S&P 500 Index lower by 1% and 2.4%, respectively. However, the US Treasury 10Y yield firmed 8.6 bps to 4.41% despite the futures market’s bet for four Fed cuts this year. While Trump asserted that monetary easing was necessary to prevent an economic downturn, the market reaction suggested otherwise. This month’s declines reflected diminished confidence in the administration’s economic stewardship – abrupt policy reversals on tariffs, a lack of policy coherence, and political pressures on independent institutions. Given the circumstances, bond yields may keep rising even if Powell gives in to Trump’s demand for rate cuts.
The Fed’s independence is a cornerstone of US economic credibility, ensuring that the monetary policy decisions are based on economic data rather than political pressures. Trump’s public criticisms of Powell, including labelling him a “major loser” and expressing eagerness for his termination, have unsettled financial markets. More US lawmakers like Republican Senator John Kennedy – who praised Powell for having the “tiger blood” to do what he thought was right – need to stand up and publicly affirm support for Powell and the Fed’s independence.
Meanwhile, the Trump administration is probably under strain from an overloaded 100-day agenda, including more than 75 countries seeking trade negotiations during the 90-day pause on elevated reciprocal tariffs. US Treasury Scott Bessent also faces a narrowing window to implement Trump’s fiscal agenda – the extension of tax cuts by the end of 2025. Bessent cautioned about going on a warning track in May or June, emphasizing an urgency to resolve the debt ceiling before reaching the X-date.
If Trump is serious about revitalizing American manufacturing, he should understand that it goes beyond tariff adjustments and supply chain shifts. It also depends on the institutional integrity – the Fed’s independence and fiscal responsibility – that form the foundation of America’s reputation as a safe, reliable, and rule-based economic system. China’s emergence as the factory of the world post-WTO accession was not built on currency depreciation but on a strengthening CNY that signalled stability and confidence to global manufacturers.
As of yesterday, the DXY Index has lost 10% of its value since Trump’s inauguration in January. The DXY is also below the psychological 100 level, at risk of a full retracement to 90, the Covid-19 low in early 2021. Further losses cannot be ruled out if Trump’s policies undermine the credibility (institutional stability and integrity, sound monetary policy, and fiscal discipline) painstakingly rebuilt after the Global Financial Crisis.
Quote of the Day
“It takes 20 years to build a reputation and five minutes to ruin it. If you think about it, you’ll do things differently.”
Warren Buffett
April 22 in history
In 1864, the US Congress passed the Coinage Act of 1864 that permitted the inscription “In God We Trust” to be placed on all coins minted as the US currency.
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