US President Donald Trump criticizes the Federal Reserve each time the stock markets falls. He blames the central bank’s tightening for the downfalls in equities and disowns his own policy on trade. Both factors are weighing on stocks.

He gradually increases his criticism, and his latest missive was to say that he “maybe regrets appointing him to the post.” Moreover, he explicitly told the Wall Street Journal that he was intentionally sending a direct message to Powell that he wanted lower interest rates.

The comments follow previous colorful statements. The President said that the Fed is “out of control” and “going loco”.

Fed reaction

Various Fed officials have fiercely defended the independence and shrugged off Trump’s words. They noted that these were “unusual” comments by the President and that they will continue fulfilling their mandate.

With growing criticism, will the Fed succumb to pressures and change its policy? Some may want to please the President while others would like to receive a promotion in the future.

However, it is safe to assume that the vast majority of FOMC officials believe that central bank independence is sacrosanct, and therefore will decide to ignore these pressures. Most are likely looking to maintain their reputation to their post-Fed stints and the post-Trump era.

And what happens if the economy slows down or inflation falls? In these cases, the Fed will have good reasons to alter their policy. They may indicate fewer rate hikes or end the tightening regime altogether.

However, with Trump’s incessant comments, Chair Powell and his colleagues may hesitate before taking a dovish turn. It may be seen as surrendering to pressures from the White House and not a clean policy reaction.

All in all, the Fed is more likely to harden its policy rather than loosen it as a response to Trump’s words.

USD and trade implications