Is Trump risking Fed & USD credibility with his Powell tantrum?

 

·         Trump is desperately seeking a 300 bps rate cut by December 2025 to refinance ~$9T worth of US debts (TSYs) at lower borrowing costs.

·         Trump has to finalize his tariff policies by August without any further uncertainty, so that the Fed can gauge the impact of the same on the economy.

·         Overall, Trump may keep ~15% weighted average tariff rates; in that scenario, the Fed should have no issue in gradually cutting rates from September’25

·         Any abrupt resignation by Fed Chair Powell and his colleagues to show a united stance against political interference may disrupt the US and global financial markets.

President Trump's ongoing criticism (narratives) of Federal Reserve (Fed) Chair Jerome Powell, including threats to fire him, has raised concerns about the Federal Reserve's independence and the U.S. dollar's credibility. Trump has repeatedly called Powell a ‘fool’, ‘stupid person’, and ‘major loser ’, demanding immediate interest rate cuts by 300 bps, arguing that inflation is low and tariffs are boosting the economy. However, Powell has maintained that the Fed's decisions are data-driven, citing Trump's tariffs as a reason for caution due to potential inflation spikes. In the last few days, President Trump has escalated his criticism of Fed Chair Powell, focusing on Powell's refusal to lower interest rates and the Fed's handling of a $2.5 billion controversial headquarters renovation project.

Trump is testing the market reaction by his floating-balloon to fire Fed Chair Powell.

July 16-17, 2025: Trump reportedly showed a draft letter to fire Powell during a meeting with House Republicans, polling them on whether he should proceed. He later told reporters it was "highly unlikely" he would fire Powell unless there was evidence of fraud, specifically referencing the costly Fed renovation as a potential issue. He called Powell a "terrible Fed chair" and criticized high interest rates, claiming they hurt the economy, particularly for homebuyers. Trump also suggested he discussed the concept of firing Powell with the Republican lawmakers, who largely supported the idea, though he described himself as "more conservative" on the matter.

July 15, 2025: Trump stated he last spoke to Powell in his office, telling him he was "doing a very bad job" and was "way late" on lowering interest rates, which Trump believes should be reduced significantly to boost economic growth.

July 11-12, 2025: Trump intensified his attacks, calling Powell a "fool" and "major loser" who is costing the U.S. a fortune by keeping rates high. He claimed Powell's actions were hindering economic success and suggested the Fed's $2.5 billion renovation project was mismanaged, echoing accusations from his administration that Powell may have misled Congress about the project.

Powell’s Defense: In a letter to Russell Vought, Director of the Office of Management and Budget (OMB), dated July 17, 2025, Powell refuted claims of mismanagement, denying that the renovation includes lavish features like VIP dining rooms, special elevators, new water features, or rooftop terrace gardens. He clarified that the project focuses on essential upgrades to the Marriner S. Eccles Building and the 1951 Constitution Avenue Building, both from the 1930s, addressing safety issues like asbestos and lead contamination, and modernizing plumbing, HVAC, and electrical systems.

Highlights of the Letter by Fed’s Chair Powell to the CMB director, explaining the HQ renovation issue:

·         No rooftop gardens or recent marble in the Fed building

·         Project Large in Scope, Involving Significant Structural Repairs, Safety and Systems Updates, Removal of Asbestos and Lead Contamination

·         No special, private, or VIP elevators in the Fed project

·         Changes after NCPC approval were to reduce and simplify construction, without adding new elements, and no further review was needed

·         Fed board believes transparency is crucial, mentions ongoing reviews, including the inspector general of the project since it started in 2017

·         Federal buildings in need of significant repairs

·         Fed Adds Page for Renovation Transparency

On July 16, 2025, Trump suggested that the $2.5 billion renovation could be grounds for firing Powell, stating, “I think it sort of is,” and calling the expenditure “disgraceful” for a central banker who doesn’t need a “palace.” He accused Powell of mismanaging the project, echoing claims from administration officials like Vought, who described the renovation as an “ostentatious overhaul.” Trump’s remarks align with his ongoing pressure on Powell to lower interest rates, which Powell has resisted due to concerns about inflation from Trump’s tariff policies.

Cost Overruns and Criticism: The Fed HQ renovation project, initially budgeted at $1.9 billion in 2019, has risen to $2.5 billion due to unforeseen issues like excess asbestos, higher labor and material costs from 2021–2022 inflation, and local building restrictions requiring costly underground construction. Critics, including Vought and Senator Tim Scott, have likened the project to the “Palace of Versailles,” alleging excessive spending, though Powell emphasized that no taxpayer funds are involved as the Fed is self-funded

Powell’s Actions: Powell has requested a fresh review by the Fed’s inspector general to address concerns about transparency and cost overruns, following a 2021 audit that noted oversight issues. He also noted that the Fed voluntarily collaborated with the National Capital Planning Commission (NCPC), despite not being subject to its authority, and scaled back some design elements in 2023 to control costs. Overall, Powell’s letter expresses President Trump's concerns about Powell's management of the Federal Reserve, specifically criticizing the handling of a $2.5 billion headquarters renovation project in Washington, D.C. Vought accuses Powell of neglecting fiscal responsibility and pushing forward with an "ostentatious overhaul" instead of addressing the Fed's financial challenges.

Trump’s Recent Truth Comments about Fed Chair Powell and the Fed board:

·         “Too Late,” and the Fed, are choking out the housing market with their high interest rate, making it difficult for people, especially the young, to buy a house. He is truly one of my worst appointments. Sleepy Joe saw how bad he was and reappointed him anyway - And the Fed Board has done nothing to stop this “numbskull” from hurting so many people. In many ways, the Board is equally to blame! The USA is Rockin’, there is VERY LOW INFLATION, and we deserve to be at 1%, saving One Trillion Dollars a year on Interest Costs. I can’t tell you how dumb Too Late is - So bad for our Country.

·         Lower the Rate, Too Late!

·         “Too Late:” Great numbers just out. LOWER THE RATE!!!  DJT

·         Fed should cut Rates by 3 Points. Very Low Inflation. One Trillion Dollars a year would be saved!!!

·         Consumer Prices LOW. Bring down the Fed Rate, NOW!!!

·         “Too Late” DEMEANS THE GREAT CREDIT OF THE USA. We are now, again, the Number One Credit in the World! “Gigantic Comeback.” The Fed Rate should be reflective of this. We should be at the top of the list!!! LOWER THE RATE!!!

·         Tech Stocks, Industrial Stocks, & NASDAQ, HIT ALL-TIME, RECORD HIGHS! CRYPTO, “Through the Roof.” NVIDIA IS UP 47% SINCE TRUMP TARIFFS. The USA is taking in Hundreds of Billions of Dollars in Tariffs. COUNTRY IS NOW “BACK.” A GREAT CREDIT! FED SHOULD RAPIDLY LOWER THE RATE TO REFLECT THIS STRENGTH. USA SHOULD BE AT THE “TOP OF THE LIST.” NO INFLATION!

Trump’s comments are part of a broader campaign to challenge Powell’s Fed leadership, with the renovation serving as a potential excuse for removal, though legal experts cite a 1935 Supreme Court ruling limiting such actions. On July 15, Trump criticized Powell’s high interest rate stance, calling him a “fool” and “major loser.” On July 16–17, he reportedly showed House Republicans a draft letter to fire Powell but later downplayed immediate action, saying it was “highly unlikely” unless fraud was proven.

Trump’s constant undermining of the Fed's independence could lead to Fed credibility issues, lower bond prices, higher bond yields, i.e., higher borrowing costs, higher inflation, a weaker dollar, and market instability. The US would look like Turkey and Hungary, where political interference by autocratic leaders led to economic turmoil. The dollar has already slid to its lowest level since 2022, with stocks and Treasury yields reacting negatively to Trump's rhetoric. When Trump briefly backed off his threats, markets rebounded, showing sensitivity to these attacks.

Fed Chair Powell is insisting that he cannot be removed without cause, a position supported by a 1935 Supreme Court ruling, though Trump's team is exploring legal workarounds, such as citing costly Fed renovations as misconduct. Markets fear that firing Powell could trigger a severe sell-off, collapsing bond markets, and the dollar, around a 3-4% drop in the trade-weighted dollar within 24 hours of such an event. While Trump's pressure may aim to boost growth, it risks stagflation—high inflation coupled with slow growth, especially given his tariff policies. The Fed's independence is seen as critical to global financial stability, and continued attacks could erode confidence in U.S. assets, with long-term consequences for the dollar's reserve currency status.

Summary of comments by Fed’s Waller:

·         Cut rates in July, and then adjust the policy meeting by meeting

·         Slow process of unloading Fed-owned mortgage bonds (MBS-QT)

·         No comment on the large desire to sell federally owned mortgage bonds

·         The Trump administration has not discussed about Fed chair with me

·         No one from the Trump administration has discussed taking the Fed chair with him

·         Nothing incorrect with fed officials differing with each other

·         Data should dictate the speed of Fed rate cuts

·         All federal officials respect central bank independence

·         Long-term bond yields indicate tight financial conditions

·         No issue with implementing an insurance cut in July

·         No issue with taking out insurance rate cut, just in case

·         Uncertainty surrounds the long-term Fed funds rate: 3% seems appropriate

·         Stablecoins introduce competition into the payment system; do not see them as a threat

·         Market price signals will determine the extent Fed reduces its balance sheet

·         Fed rate cuts should be driven by data

·         No comment on the large desire to sell federally owned mortgage bonds

·         Long-term bond yields do not indicate loose financial conditions

·         Slow process of unloading Fed-owned mortgage bonds

·         Fed officials disagreeing is not a problem

·         Renovations often exceed budget

·         Nothing wrong with Fed officials disagreeing with each other

·         Inflation has been higher than anyone predicted in 2017

·         A lot of focus on the Fed renovation

·         Renovations commonly see cost overruns

·         Market price signals will determine the extent Fed reduces its balance sheet

·         The pace of rate cuts will depend on the data

·         Data should dictate the speed of Fed rate cuts

·         No comment on significant interest in selling Fed-owned mortgage bonds

·         Rebalancing the Fed portfolio is a slow process

·         Slow process of unloading federally owned mortgage bonds

·         Stablecoins can bring competition to payments.

·         Stablecoins introduce competition into the payment system: do not view them as a threat

·         Lowers rates in July and then adapts the policy meeting by meeting

·         Looking to reduce rates to provide a bit more stimulus

·         Administration has not discussed the Fed Chair job

·         No one from the Trump administration has discussed with ME about becoming Fed Chair

·         Long-term Bond Yields Suggest Loose Financial Conditions

·         Evidence indicates the neutral rate is close to 3%

·         Lots of uncertainty surrounding long-term fed funds rate; 3% seems appropriate

·         The Fed should cut rates by a quarter point this month

·         Risks to Fed Employment Mandate Have Increased

·         Underlying inflation is close to the Fed's target

·         July rate cut could provide Fed room to keep rates steady for a few meetings

·         A 10% tariff could raise inflation 0.75%-1% year on year

·         Tariff impact, inflation close to Fed's 2% target

·         Tariffs will increase inflation in the near term

·         Tariffs are likely to have a one-time impact Fed can look through

·         Data indicates job market 'on the brink'

·         Anticipates trade impact to diminish year on year

·         The economy warrants a monetary policy closer to a neutral setting

·         Evidence Mounting, Labor Market Growing Weaker

·         Risks involve an economic slowdown with GDP around 1%

·         Private sector hiring near stall speed

·         Inflation Upside Risks Limited

Conclusions:

Although Fed Governor Waller is batting for the start of the next rate cut cycle from July 30, he acknowledged that he is in the minority camp. Most of the other Fed officials are indicating rate cuts from September, followed by December 2025, cumulating 50 bps in 2025 against Trump’s pressure of 300 bps. Trump needs lower borrowing costs desperately & immediately to refinance ~$9T of US public debt (TSYs) later this year. But Trump’s Powell tantrum and a potential resignation by Powell, along with some other Fed officials or even the whole Fed board (as a mark of unity and to pressure the Trump admin), may lead to a collapse of Wall Street and a surge in borrowing costs. This is a catch-22 situation; even if the Fed wants to cut rates in July or September, it will hesitate as it will show the Fed is blinking against the Trump threat.

If Trump indeed finalizes his tariff policies/rates by August, then the Fed may anticipate the overall impact on the US economy, especially inflation, employment, and growth. As per overall Trump’s tariff tone and letters, Trump is using his reciprocal tariff rhetoric as an effective negotiation tool to offshore global manufacturing intended for US goods in the US and also to get better trade deals with the rest of the world, ensuring free & fair access of US products. Trump may also withdraw Fentanyl tariffs of 20% on China for significant progress on the prevention issue.

Unlike April, Wall Street is relatively calm this time despite Trump's August tariff threats, as the fine print shows net effective average tariffs ~25% vs earlier 28%. And Trump may soon withdraw the Fentanyl levy of 20% on China and reciprocal tariffs of 20% on the EU to bring 10% basic tariffs for both. Trump's effective tariffs on Canada are now ~9.50% and Mexico ~13.75% after adjusting USMCA compliant goods at 0% and Canadian energy & Potash at10%-far lower than the headline suggests; only 10% Canadian goods are facing higher tariffs of 60% and ~25% Mexican goods are facing 55% tariffs. EU, China, Mexico, and Canada together contribute ~60% ofUS imports.

Even if Trump continues his higher reciprocal tariffs ~20% on average, the net weighted average US tariffs would be around 15% including 25% sectoral tariffs on metals, automobiles, chips, and potential pharmaceuticals. Thus, if we adjust ~3% pre-Trump 2.0 era average tariffs, the net increase of US tariffs may be around 12%, which could be borne equally ~4% by all the concerned stakeholders; i.e., US importers/retailers/producers, US consumers and also may be by global exporters to retain their US market share. Underlying currency (FX) adjustments may also absorb the full net impact alone; e.g., USDCNY is now hovering around 7.00-7.15 and may easily go around 7.35-7.50 in the coming months, equivalent to 4-5% additional; Trump tariffs cost adjustments.

But this narrative holds good as long as Trump keeps his final tariffs within a reasonable range without affecting economic activities too much. And Trump also has to finalize his tariffs strategy/trajectory for the Fed to understand the overall impact on the economy, including inflation and employment. If Trump continues to linger his tariff & trade war beyond August 2025, it may cause more uncertainty for the Fed and other stakeholders. Any loss of Fed credibility will be damaging for USD and its status as the undisputed global reserve currency.

Although at this moment, there is no real competitor of the King Dollar, the EUR and CNY are far away, any loss of institutional credibility and the increasing potential of a common currency by BRICS nations may be worrisome for the US hegemony and its unilateralism. The USD is the biggest weapon for the US in trade and geopolitical war. Almost every country needs USD as a common currency to settle trade. If that is gradually replaced by any common BRIC currency, EUR and CNY, then the US may even lose its most influential global superpower status, something which no US President or even Trump will seek.

Trump is probably a unique President of the US or any major economy, who is trying to run his policy agenda (rhetoric) through Twitter/Truth, and is actually controlling Wall Street and also Global Street. The US financial market is now dancing to the Trump tune, not the Fed. The market is focusing entirely on Trump’s morning moods, Truths, and random comments/media bytes; i.e., Trump politics & policies, not economics or even Fedonomics; Trumponomics is controlling the Wall Street, which is now trading over 30 TTM PE; historically a bubble zone and may correct soon.

Weekly Technical outlook: DJ-30, NQ-100, SPX-500 and Gold

Looking ahead, whatever may be the narrative, technically Dow Future (CMP: 44800) now has to sustain over 45000 for a further rally towards 45300*/45800* and only sustaining above 45800, may further rally to 46100/46500-47100/47200 in the coming days; otherwise sustaining below 44950, DJ-30 may again fall to 44200/43900-43400/42400 and 41700/41200-40700/39900 in the coming days.

Similarly, NQ-100 Future (23000) now has to sustain over 23100 for a further rally to 23300/23600*-23800/24000 and 24100/24450-24700/25000 in the coming days; otherwise, sustaining below 22900, NQ-100 may again fall to 2400/22200-21900/20900-20700/20200 and 19890/18300-17400/16400in the coming days.

Looking ahead, whatever may be the fundamental narrative, technically SPX-500 (CMP: 6300) now has to sustain over 6450-6500 for a further rally to 6600/7000-7500/8300 in the coming days; otherwise, sustaining below 6375/6300-6250/6200, SPX-500may again fall to 6000/5800-5600/5300 in the coming days.

Technically Gold (CMP: 3350) has to sustain over 3375-3395 for a further rally to 3405/3425*-3450/3505*, and even 3525/3555 in the coming days; otherwise sustaining below 3365-3360, Gold may again fall to 3340/3320-3300*/3280 and 3255*/3225*-3200/3165* and further to 3130/3115*-3075/3015-2990/2975-2960*/2900* and 2800/2750 in the coming days.

Disclaimer:  I am an NSE-certified Level-2 market professional (Financial Analyst- Fundamental + Technical) and not a SEBI/SEC-registered investment advisor. The article is purely educational and not a proxy for any trading/investment signal/advice.  I am a professional analyst, signal provider, and content writer with over ten years of experience. All views expressed in the blog are strictly personal & independent and may or may not match with any organization with, I may be associated.

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