On Monday, major stock market indices experienced significant declines, with the Dow Jones Industrial Average, S&P 500, and Nasdaq-100 each dropping approximately 3%, exacerbating recent losses. The primary cause for these downturns is President Donald Trump’s escalating pressure on Federal Reserve Chairman Jerome Powell to decrease interest rates. In a social media statement, Trump cautioned that the U.S. economy might slow unless interest rates were lowered immediately, urging Powell to take action.
Trump’s criticism of the Federal Reserve, particularly Powell, is not unprecedented. Although he appointed Powell during his first term, Trump frequently condemned Powell in the years before the COVID-19 pandemic for increasing interest rates in the absence of inflation.
The situation differs now because Trump has explicitly mentioned the possibility of “terminating” Powell, though he likely lacks the legal authority to do so. Trump’s legal team is reportedly exploring whether he can legally remove Powell from his position. Powell’s term as Federal Reserve chair is set to officially end in May 2026, and he has expressed his intention to complete his term, maintaining that Trump cannot lawfully dismiss him.
Powell has also indicated that Trump’s trade war could be a reason for keeping rates elevated, saying, “For the time being, we are well-positioned to wait for greater clarity before considering any adjustments to our policy stance.” Despite Trump’s criticisms, Powell is not inclined to lower rates soon.
The independence of the Federal Reserve has long been a cornerstone of the U.S. financial system, causing concern among investors. Financial experts and notable politicians have warned about potential repercussions if Trump attempts to remove Powell. Senator Elizabeth Warren, D-Mass., who has questioned the Fed’s decision to maintain relatively high interest rates, cautioned that the stock market could crash if Trump moves to dismiss Powell. Evercore ISI Vice Chairman Krishna Guha noted that the market would likely experience sell-offs, and CNBC senior analyst Ron Insana suggested such an action would damage global confidence in the United States.
There are indications that investors are becoming apprehensive. Besides the stock market downturn, the U.S. dollar has significantly weakened, hitting its lowest point since the 2022 bear market. Meanwhile, “safe” assets like gold have surged, reaching a record high on Monday. One critical point is that the stock market generally dislikes uncertainty, which is contributing to recent market behavior. The CBOE Volatility Index (VIX), considered a key indicator of investor fear, has doubled its level since the November presidential election.
The central question for investors is whether to worry or seek investment opportunities. Long-term investors are advised not to panic and sell their holdings if the underlying reasons for their investments remain valid. It’s a challenging period that might warrant a cautious investment approach, particularly regarding new investments in rapidly growing or speculative companies. Although no one can predict market movements with certainty, it’s prudent to anticipate further volatility in 2025. Strategies like dollar-cost averaging could be advantageous for gradually acquiring stocks or ETFs intended for long-term ownership. Historically, when the S&P 500 declines by more than 15% from a recent high, as it has in 2025, it is an opportune time to invest from a long-term viewpoint. However, investors should be prepared for the possibility that stocks might decrease further as they navigate this volatile market environment.
The article originally included contributor details, noting that writer Matt Frankel holds no positions in any mentioned stocks. The Motley Fool also has no positions in these stocks and follows a disclosure policy.
