U.S. stocks tumbled and bonds sold off Monday after President Donald Trump lobbed new insults at Federal Reserve Chair Jerome Powell, pressuring him to cut interest rates while markets are already contending with shocks from his tariff policy.
The S&P closed down 2.4%. Since its February highs, the index is now off 16%, approaching bear market territory of a 20% decline.
The tech-heavy Nasdaq fell more than 2.5%. The Dow Jones Industrial Average lost almost 1,000 points, or 2.5%. The yield of the 10-year U.S. Treasury note surged to 4.41%, its highest level in more than a week.
All three indexes are down more than 9% since Trump's April 2 "Liberation Day" tariffs announcement.
In a post on Truth Social at 9:41 a.m., Trump claimed that “preemptive cuts” were being called for “by many” now that the economy was facing what he described as “virtually No Inflation.” He didn’t say who has called for the pre-emptive cuts, which the Fed rarely performs.
Without the cuts, Trump said, the economy risks slowing, "unless Mr. Too Late, a major loser, lowers interest rates, NOW."
"Powell has always been 'To Late,' except when it came to the Election period when he lowered in order to help Sleepy Joe Biden, later Kamala, get elected. How did that work out?" The Fed most recently cut interest rates on Dec. 18, after Trump was re-elected.
Though Trump has long criticized Powell, whom he appointed during his first term, his complaints have ramped up in recent days amid a major market reaction to his tariffs shock.
Economic adviser Kevin Hassett also said last week that the administration was “study[ing]” Trump’s options to remove Powell.
Firing Powell would be unprecedented: No president has ever removed a Fed chair. The Fed has historically been a nonpolitical part of the government, and the prospect of Trump’s taking action has sparked concern that inflation would surge as he forced the central bank to ease up on its role of controlling price growth in favor of economic growth.
There was little reason for optimism elsewhere. Bond yields moved higher after having briefly fallen, meaning they were demanding a higher return for lending to the government. Those yields have been closely watched by economists and bank analysts who worry that the rising yields combined with falling stock prices — a rare combination — showed that the market was broadly moving away from exposure to the U.S. economy and its government.
In a note to clients Monday, analysts with Evercore ISI financial group warned Trump was risking a "global buyers strike" from bond investors that risked sending bond yields even higher, assuming he fails to meaningfully control the deficit.
"Market action Monday morning sends a clear signal [that] risk to Fed independence is negative for all major US asset classes," they wrote.
In referring to the slowing economy, Trump may be becoming more attuned to the negative shock his tariffs strategy is creating to growth.
A growing chorus of Wall Street firms and analysts increasingly foresee the U.S. economy entering a recession, which real-time measures of gross domestic product also show.
While it is true that the rate of inflation has slowed from a 9% high at the height of the pandemic, the measure of price growth most closely observed by the Fed remains above its 2% target and actually accelerated in February.
Not all White House officials appear to be on board with pressuring Powell. Just last week, Treasury Secretary Scott Bessent told Bloomberg TV that the administration would begin interviewing candidates for Powell's successor this fall, adding it would give the Trump administration about six months’ lead time before Powell officially leaves office when his term is up next year. He gave no further details.
Though bond yields fell immediately after Trump's post — meaning investors increased their purchases of U.S. Treasury notes, which Trump is seeking — any effort to remove Powell would most likely be met with a sell-off of bonds, said Mark Zandi, chief economist of Moody's Analytics.
"Bond investors really don’t like the Fed’s independence impaired, and if the president actually did fire Powell, the bond market would throw up all over it and long-term interest rates would go skyward," he said. "It's a really bad idea. A cornerstone of a well-functioning economy like our own is a well-functioning central bank. If we lose that, we lose our economy’s secret sauce."
