Why Trump's Attacks on Powell Make Interest Rate Cuts Less Likely

• Trump escalates pressure on Fed Chair Powell, demanding rate cuts while hinting at possible removal, fueling market uncertainty
• Bond yields spike amid fears of political interference in Fed policy, signaling investor concerns over inflation and stability
• Gold surges while Treasury bonds struggle as global markets react to aggressive tariffs and rising economic tensions

Recently, the U.S. President Donald Trump doubled down on his attacks against the Federal Reserve Chair Jerome Powell. On a Twitter rant this week, Trump pressured the head of the United States Central Bank while borderline campaigning for his termination.

The motivation behind the attack is that the President is demanding that the Federal Reserve lower interest rates at the upcoming FOMC meeting on May 6–7. While the Fed supervised three consecutive interest rate cuts in the last quarter of 2024 — the Central Bank is yet to lower interests during the Trump administration. 

“There can be a slowing of the economy unless Mr. Too Late, a major loser, lowers interest rates, NOW,” Trump wrote on his Truth.Social account. 

Moreover, the commander in chief also alluded to the possibility of the Chairman’s resignation, saying, “Powell’s termination cannot come fast enough!” On truth.social.

However, the impact of the President’s attacks on the Federal Reserve head could have the direct opposite effect. 

Treasury Yields Spike as Attacks on Fed Increase

U.S. markets have endured historic sell-offs in April as a result of the aggressive tariff stance by the United States. 

In turbulent times like these, investors tend to flee with their funds in search of hedges against inflation. Notoriously, the most common assets sought are Treasury Bonds and Gold. While gold has been doing just fine, breaking through new ATHs seemingly every week — the same cannot be said for the bond market.

In April, the 10-year US Treasury yield saw a remarkable spike, as reported by the Federal Reserve Bank of St. Louis.

When bond prices decline, their yields rise to compensate investors for holding lower-valued securities. This inverse relationship occurs because newly issued bonds offer more competitive returns, making older bonds less attractive unless their yields adjust upward.

This could either mean one of two things. Foreign nations have lost confidence in the Dollar and have begun to sell U.S. bonds. China itself holds $759 billion in U.S. bonds, while Japan—a nation also affected by the tariffs—holds over $1 trillion. 

Investors may also be assessing the current state of the U.S. economy. If they determine that rising inflationary pressures could push the Federal Reserve toward higher interest rates, they might adjust their portfolios accordingly. This expectation could drive sell-offs in existing bonds.

In the unlikely scenario where Trump is able to remove Powell from the Fed seat, the negative market reaction when it comes to bond prices would probably be even more significant. The mere insinuation by the President that he could influence the resignation of the head of an independent entity like the U.S. Central Bank has already caused bond yields to rise, reflecting a sell-off in the market.

The result is that the Fed is now playing with an even weaker hand. As long-term yields rise, the likelihood that the Federal Reserve agrees on an interest rate decrease at the next Federal Open Market Committee decreases even further.

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