US stocks sell-off deepened on Monday after President Donald Trump stepped up his calls for the Federal Reserve to cut interest rate on social media. The president’s threats to remove the Fed Chair Jerome Powell have hit American assets broadly, weighing on longer-dated Treasuries and the dollar.
The S&P 500 sank 2.1 per cent and the dollar index weakened to a 15-month low as Wall Street reopened after the Easter holiday weekend. The benchmark 10-year fell with the yield close to 4.4 per cent. As investors turned away from US securities, haven assets climbed. Gold jumped to another record, above US$3,400 an ounce, while the Swiss franc gained more than 1 per cent against the dollar.
The US president took to social media escalating his attack on the Fed chair, and insisted there was “virtually” no inflation, and it was time for “pre-emptive cuts.” The last reading of the Fed’s preferred inflation gauge remains above the central bank’s target, the next readout comes next week.
National Economic Council Director Kevin Hassett said on Friday that Trump was studying whether he is able to fire Powell. The comments raised new questions about whether the Fed can maintain its long-standing independence, with the president increasingly venting dissatisfaction in harsh terms that the central bank has not moved faster to lower interest rates.
“Were Powell to be fired, the initial reaction would be a huge injection of volatility into financial markets, and the most dramatic rush to the exit from US assets that it is possible to imagine,” said Michael Brown, senior research strategist at Pepperstone. “Not only is the independence of the Fed clearly under threat, but the prospect of de-dollarisation and a move away from US hegemony is an increasingly realistic one.”
It’s a fear that’s being echoed by hedge fund elites. Paul Singer, founder of Elliott Investment Management, warned recently at a private event in Abu Dhabi that the US dollar might lose its reserve currency status, according to people present.
