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President Trump attributes the weakening economy to Federal Reserve Chairman Jerome Powell’s refusal to lower interest rates as Trump desires to stimulate growth.
However, most observers, including Powell himself (dubbed “Mr. Too Late” by Trump), point to Trump’s own actions—specifically his use of tariffs—as the primary cause.
The White House attempts to downplay the disagreement and present a unified policy front, despite conflicting statements from Trump and Treasury Secretary Scott Bessent. This disconnect is particularly damaging given Trump’s focus on the stock market, which is reflecting investor unease.
Since Trump’s inauguration, stock values have decreased, the bond market has become unstable, and the dollar has weakened. The International Monetary Fund recently increased its recession probability forecast to 37%, surpassing the assessment of Americans where a Gallup poll indicates 42% believe the economy is already in a recession or depression.
This backdrop clarifies Trump’s recent apparent shift, claiming “no intention” to dismiss Powell, just days after demanding Powell’s immediate removal. (The President’s authority to remove the Fed Chair remains unclear, but markets are fearful of any attempt.)
Meanwhile, Bessent suggested in a private JPMorgan Chase speech that the U.S.-China trade war might de-escalate, noting the current situation is unsustainable for both countries, who add significant costs to imports. Bessent’s remarks boosted markets. (His influence on market upswings is well documented.)
Investors prioritize stability, which explains the U.S.’s position as a top destination for foreign direct investment, holding over $5 trillion from foreign investors (approximately 10% of global FDI, according to IMF data).
Wall Street rallied following remarks from Trump and Bessent; however, those in Washington close to major investors say these statements aren’t seen as reliable for long. The IMF has lowered its U.S. economic growth forecast to 1.8% this year, from a prior 2.7%. (For comparison, the economy grew by 2.8% during Biden’s last year in office.)
Trump seems to recognize the deteriorating situation but still criticizes Powell for not lowering borrowing rates to stimulate the economy. However, such a move could increase inflation, which remains a concern. Core inflation is at its lowest level since March 2021.
On Wednesday, Bessent addressed Trump’s grievances at an IMF event while attempting to reassure markets.
“The IMF once focused on global monetary cooperation and financial stability, but now spends too much time on climate change, gender, and social issues,” Bessent stated. He attributed the organization’s failure to maintain global economic equilibrium (often benefiting the U.S.) to “mission creep.”
In a follow-up with reporters, Bessent said de-escalation with China is a priority, but no direct talks are happening between leaders, suggesting the administration would consider a general framework without a formal agreement a success.
The White House continues to portray the economic issues as a temporary setback that won’t prevent a manufacturing renaissance as companies choose to invest domestically rather than pay import taxes. They still see Powell as the main problem, or at least a convenient scapegoat. White House Press Secretary Karoline Leavitt accused the Fed of maintaining steady rates for political reasons rather than for the good of the American economy.
Those who closely monitor the Fed and Wall Street find the White House narrative inconsistent with reality. As investors prepare for the consequences of Trump’s global standoffs, the Administration’s inconsistent messaging is becoming ineffective.
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