Trump-Powell showdown puts Fed’s independence, dollar’s stability at risk
NEW YORK (April 22) Gold and Bitcoin are rallying in the wake of the latest crisis of confidence shaking the U.S. economy and the world’s markets. And while the previous panics were driven by wholesale changes to the global trading order, this one threatens to erode the very core of American exceptionalism: the almighty dollar and the Federal Reserve’s independence.
After Fed chair Jerome Powell’s surprisingly direct comments on Wednesday afternoon about the potential impacts of the Trump administration’s policies – and his strongest statements to date about the central bank’s independence – the president wasted no time launching a broadside of his own on Thursday.
Darin Newsom, senior market analyst at Barchart.com, told Kitco News in an interview on Thursday that Powell’s comments were very significant because the Fed chair made it clear that he’s not waiting on Trump to define the situation and try to force the FOMC’s hand.
“I've thought for a long time that Chairman Powell has a good handle on the situation,” he said. “So when he comes out yesterday and says, ‘Look, this is going to cause inflation, we cannot continue to talk about cutting rates, we have to start talking about the possibility of raising rates,’ he's absolutely right. You cannot cut rates in this environment where we know inflation's going to go up, where the dollar is getting its legs chopped off every day. We know inflation's coming back, and you cannot hamstring the central bank by saying, “You are not allowed to raise rates, you have to cut rates.’ They won't do it. You have to have that flexibility, that's the only way to battle inflation.”
“The previous time around, the Fed got bullied into not raising rates when inflation started to take off because of all the trade war and tariff silliness. The Fed hesitated,” Newsom said. “This time, he's not going to do that because we saw what happened. Inflation didn't have any breaks on it back from 2016 to 2020. It was too late, the horse left the barn, and then the fight throughout the entire Biden administration was trying to get inflation corralled again to the point where the Fed could start lowering rates.”
“His stance [on Wednesday] is that the president can say whatever he wants, he's not going to bully the Fed,” he added. “He does not run the Fed like he wants to. [Trump] said he was going to have the final say on all interest rate decisions. It didn't happen, and it's not going to happen. Chairman Powell was making that very clear yesterday.”
Newsom said it was also significant that Powell shared his view on the pending Supreme Court decision about Trump’s ability to replace senior staff at independent agencies. Rather than saying that he’d wait to hear the Supreme Court’s ruling, the Fed chair preemptively said it would likely have no bearing on the central bank.
“Our independence is a matter of law,” Powell said. “Congress has in our statute that we're not removable except for cause. Congress could change that law, but I don't think there's any danger of that. Fed independence has pretty broad support across both political parties and on both sides of the hill.”
“I don't think [the Supreme Court] decision will apply to the Fed, but I don't know,” he added. “It's a situation that we're monitoring carefully.”
Newsom said this represents a pointed departure from Powell’s usual wait-and-see attitude, and he wouldn’t have made these statements unless he had first consulted with the Fed’s lawyers.
“What's interesting about that is he is getting legal advice,” Newsom said. “I'm sure he is getting legal advice on constitutional law, but what the difference is now is that we have a U.S. president who is not hindered by constitutional law, or the structure of the U.S. government, the three branches. He's unencumbered by having to worry about anything Congress says he does not. In his mind, he does not have to do anything the courts say, Supreme Court included.”
Because of this, any attempt to interfere with or dismiss Powell will constitute a critical legal test.
“If he comes out and says, ‘Chairman Powell, you're fired, you're gone, you didn't lower interest rates, I'm going to bring in some flunky to rubber stamp everything the president says,’ that will be a legal fight that's going to happen over the next four years.”
Newsom agreed that, based on Powell’s statements, he appears to want to get ahead of this, but only time will tell whether the Federal Reserve can maintain its independence from the executive branch.
“The fear in all that is the President's control over a certain segment of Congress to give – not all presidents, but this president – final say over interest rates,” he said. “So when he comes out and says, ‘I want lower interest rates,’ then you would know that his puppet of a Fed chair, and governors, would then do his bidding and do exactly as he said.”
“It's a huge deal.”
Trump continued his attacks on Monday morning, calling Powell “a major loser” and demanding a different kind of preemptive action from the Fed chair.
Newsom said he’s looking forward to hearing what Warren Buffett has to say at the upcoming Berkshire Hathaway meeting on May 3.
“Almost inevitably, at some point in his question-and-answer period, [Buffett] always says, ‘Bet on America,’” he said. “I disagree wholeheartedly with that idea, and it looks like to me the rest of the global investment community disagrees with that as well.”
After weeks of trade tariffs, pivots, and counter-pivots, Newsom said global markets are rendering their own verdict on the United States.
“The dollar continues to collapse while gold continues to rally,” he said. “What this tells me is the rest of the world, quite frankly, has lost faith in the United States. It does not take the United States seriously anymore. There's no reason to. And so, while the U.S. dollar should be going up, we still see global investors selling the dollar and buying other currencies. They've lost faith in the U.S., and I think this also is coming to bear on U.S. equities as well.”
Given the current environment, Newsom believes gold can continue to rally on top of its already dramatic gains.
“I still see smart investment money going over into gold,” Newsom said. “Doesn't matter if it's $3,000, $3,300, $4,300, whatever. I think it IS the safe haven market. It's not crude oil, it's not bonds or anything like this. As far as futures go, to me it's still gold. Gold still reigns as the safe-haven market.”
Gold prices are catching a renewed bid in thin Monday trading, with spot gold last trading at $3423.03 per ounce for a gain of 2.87% on the session.
Bitcoin has also benefited from the slide in the U.S. dollar and renewed inflation fears, with King Crypto up 3.41% to $88,082.88 at the time of writing.
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