US stocks skidded on Tuesday and the pound surged to a seven-month high against the dollar after President Donald Trump doubled down on attacks on Federal Reserve Chair Jerome Powell.
In a post on Truth Social, Trump said the economy could slow down unless interest rates are lowered immediately, raising fresh concerns over the autonomy of the central bank.
It follows comments by White House economic adviser Kevin Hassett on Friday that Trump and his team would study if firing Powell was an option.
Sterling climbed 0.3 per cent to $1.342 on Tuesday, its highest level since September. The Dow Jones fell 2.48 per cent, the S&P 500 index plunged by 2.4 per cent and the Nasdaq lost 2.55 per cent.
Gold prices briefly broke above $3,500 per ounce to an all-time high on Tuesday, which experts said was triggered by Trump’s attack on the Fed.
The Federal Reserve was established as an independent agency and most economists think central banks that are free of political interference do a better job at keeping inflation in check.
Trump recently accused Powell of cutting interest rates last year “in order to help Sleepy Joe Biden, later Kamala, get elected.”
The Fed reduced its key rate three times in late 2024 as inflation cooled and out of concern that hiring was also slowing, though it later rebounded.
On Tuesday, Bank of England policymaker Megan Greene said US trade tariffs are more likely to push down on UK inflation than to push it up, but that there are risks on both sides.
She told Bloomberg: “The tariffs represent more of a disinflationary risk than an inflationary risk.”
However, she added: “There’s a ton of uncertainty around this, but there are both inflationary and disinflationary forces.”
She said potential outcomes like export substitution would likely push inflation down, while “trade diversion from other countries that are trying to find a new home for their markets, that also pushes down on inflation”.
Meanwhile, “a re-patterning of supply chains can push up on inflation”, while trade fragmentation more widely “reduces potential growth, that tends to be inflationary”.
