A flight from U.S. assets, including the dollar, could worsen if the president continues his attacks on the Federal Reserve, analysts warn.
Losing leverage
If investors follow any adage about the markets, it’s this: Don’t fight the Fed.
But President Trump has repeatedly challenged — or outright ignored — that maxim. Markets have responded with fury, undercutting his negotiating position on tariffs as the White House seeks to reach scores of trade deals with other countries, with little progress in sight.
The latest: S&P 500 futures were rebounding on Tuesday morning. But the index is still nursing hefty losses after Trump demanded that the central bank lower rates “NOW” despite the Fed’s reticence to do so anytime soon.
He also called Jay Powell, the Fed chair whom he has repeatedly attacked, “a major loser.”
Undermining the bedrock notion of Fed independence will handcuff the central bank’s efforts to fight inflation, warned Austan Goolsbee, president of the Chicago Fed. Trump’s broadsides have also rattled investor confidence in the dollar and in long-dated Treasury notes and bonds. Gold hit another record on Tuesday morning, briefly topping $3,500 an ounce.
Analysts warn that a capital flight from U.S. financial assets isn’t over as concerns grow that Trump’s trade war could plunge America into recession.
“Dollar weakness is here to stay,” Kamakshya Trivedi, a strategist at Goldman Sachs, told Bloomberg Television on Tuesday. The dollar’s roughly 9 percent decline this year leaves U.S. consumers with less spending power — and that’s before they contend with Trump’s new import duties and a slowing economy.
Companies are also fighting on multiple fronts. Earnings are largely expected to hold up this reporting season, but some companies are refraining from issuing financial forecasts because of tariff uncertainty.