Making sense of the forces driving global markets

By Jamie McGeever, Markets Columnist 

If Federal Reserve Chair Jerome Powell was cautious and mildly hawkish in his outlook for U.S. monetary policy on Wednesday, European Central Bank President Christine Lagarde was bold and dovish on Thursday, as the ECB cut interest rates for a seventh time in a year and left the door open to more easing.

Back in Washington, U.S. President Donald Trump escalated his long-running feud with Powell, accusing him of "playing politics" and saying his "termination" can't come quickly enough. More on that and more below, but first, a round-up of the day's main market moves. 

I'll be off tomorrow, as the U.S. stock market will be closed for the Good Friday holiday, but Trading Day will be back on Monday.

I’d love to hear from you, so please reach out to me with comments at jamie.mcgeever@thomsonreuters.com. You can also follow me at @ReutersJamie and @reutersjamie.bsky.social. 

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In 'normal' times, the ECB cutting rates and signaling it is ready to potentially cut them much further might be expected to be the driving force in world markets that day. The International Monetary Fund warning of a "notable markdown" in global growth might also have come across investors' radar. 

But with the Trump administration triggering a global trade war and seemingly bent on upending the global economic order of the past 80 years, these are not normal times. What next, Trump firing Powell or forcing him out? 

Nobody knows. But one thing is certain - Trump raised the stakes on Thursday to a whole new level, first in a social media post on his Truth Social platform and later speaking to reporters at the White House.

Powell and his colleagues face an unenviable dilemma, one which is a direct consequence of Trump's tariffs - the slowing economy calls for rates to be cut, but rising inflationary pressures might require them to be raised. 

Trump clearly wants lower rates, but Powell said on Wednesday the Fed will continue its 'wait and see' approach before acting one way or the other. 

The immediate market impact of Trump's latest attack on Powell - and by extension, attack on the Fed's independence - was to erase the dollar's and Wall Street's gains, and keep long-term Treasury yields at their highs for the day.

Looking ahead, if this crisis deepens investors are likely to view it as the latest in a lengthening list of reasons not to hold U.S. assets. That points to lower stocks, a weaker dollar, and higher Treasury yields.

Long-dated yields are already marching higher and the 'term premium' is its highest in a decade. Faith in the dollar and Treasuries, confidence in U.S. economic policy, and trust in U.S. institutions and governance have rarely been lower.

Fed independence and the prospect, remote or otherwise, of a new Trump-appointed Fed Chair before Powell's term ends in just over a year's time will give inventors plenty food for thought over the long weekend and Easter holiday.

Just like a global trade war, the dismissal of the chair of the Federal Reserve by the U.S. President is an event investors know will be unequivocally bad for markets. But it is also a risk that is too far-reaching to properly quantify, meaning the market might be forewarned, but it won't be forearmed.

U.S. President Donald Trump on Thursday escalated his feud with Fed Chair Jerome Powell - who Trump himself nominated in 2017 – writing on social media that "Powell's termination cannot come fast enough" and later telling reporters that the Fed chair is "playing politics".

Trump's social media broadsides against Powell for not cutting interest rates are so numerous that jaded investors could be forgiven for dismissing them. But they shouldn't.

Trump's salvo on Thursday comes only days after the Supreme Court cleared the way for him to fire Democrats from two federal labor boards before their terms expired, a move that some lawyers and analysts argue could leave Fed officials like Powell vulnerable. Powell said on Wednesday he didn't think this applied to the Fed, but he wasn't sure.

This latest tirade comes at an extremely dangerous moment for U.S. and world markets. Faith in the dollar and Treasuries, confidence in U.S. economic policy, and trust in U.S. institutions and governance have rarely been lower.

This is putting upward pressure on the 'term premium' in the U.S. bond market. That's the somewhat amorphous level of compensation investors demand for taking the risk of lending to the U.S. government over the long term rather than rolling over shorter-term loans. The term premium is its highest in a decade.

It's not difficult to see why investors might be getting twitchy. Faith in central bank independence is foundational in the modern financial system. That's because politically influenced monetary policy may be popular and stimulative in the short term but damaging in the long term.

As former Fed Chair Ben Bernanke said in 2010: "Political interference in monetary policy can generate undesirable boom-bust cycles that ultimately lead to both a less stable economy and higher inflation."