Trump renews attacks on Powell as US markets decline further

US President continues to threaten Federal Reserve's independence

President Donald Trump is increasing his attacks on Federal Reserve chairman Jerome Powell. AFP

US President Donald Trump increased his attacks on Federal Reserve chairman Jerome Powell on Monday, sparking a new market sell-off to begin the week's trading.

In a social media post, Mr Trump called on the Fed to issue “pre-emptive cuts” for the presumed weaker growth and higher inflation forecasts that economists generally believe to be a result of the trade war he started earlier this year.

Mr Trump also said costs were trending downwards, warning “there can be a slowing” of the economy unless Mr Powell – who the President called a "loser" – cuts interest rates.

The Fed is expected to keep interest rates steady at about 4.3 per cent when it meets next month, according to CME Group data.

The US market, meanwhile, already on edge, resumed the sell-off that began after Mr Trump announced a series of tariffs.

The Dow Jones Industrial Average fell 971 points – or 2.48 per cent – while the S&P 500 and Nasdaq Composite fell 2.36 per cent and 2.55 per cent, respectively.

The US dollar index, which measures the greenback against a basket of foreign currencies, dipped as low as 97.72, its lowest in three years.

Mr Trump escalated his attacks on the Fed chairman last week after Mr Powell suggested the central bank was not hurrying to cut rates amid heightened uncertainty over the effects of the tariffs. Mr Powell added the larger-than-expected tariffs could force the Fed to choose between inflation or weaker growth.

“If I want him out, he’ll be out of there real fast, believe me,” Mr Trump said on the possibility of firing the Fed chairman last week. In a separate social media post, he said Mr Powell's “termination cannot come fast enough".

Those remarks sparked fears that Mr Trump could undermine the independence of the Fed, which makes its monetary policy decisions without political interference.

Removing a Fed chair over a policy dispute would probably cause more market turmoil as investor confidence rests on the central bank's ability to make its decisions independently rather than for short-term political gains.

Those fears have also bled into the bond market, with the yield on the 10-year Treasury climbing 8 basis points at 4.409 per cent.

Whether a president can fire a Fed chair remains an open question, and one that has never been tested. Mr Powell has remained adamant that the President does not have the authority to fire him. He also said he would not leave if asked.

White House economic adviser Kevin Hassett on Friday said the Trump administration was studying whether firing Mr Powell was an option.

“That would undermine the credibility of the Fed,” Chicago Fed president Austan Goolsbee told CBS on Sunday.