"You're fired, Powell!" — But what Powell fears more than Trump right now is this.

President Donald Trump’s tariff policy is now escalating into what looks like a full-scale economic war, potentially expanding into a currency war. While Trump confidently claims victory, both external and internal dynamics suggest that the situation is far from favorable.

Externally, traditional allies such as Europe have responded with skepticism and caution. Though they have entered into negotiations with the U.S., their stance seems more like strategic patience, ready to retaliate if necessary. Internally, the U.S. is fighting a different kind of war — a war on its own institutions.

As previously mentioned, Trump appears willing to do whatever it takes to defend U.S. dominance — both geopolitically and in terms of dollar hegemony — to secure his ideological agenda and legacy. That domestic battle has already begun, and the next target is clear: Federal Reserve Chair Jerome Powell.

Powell Under Fire

Jerome Powell now faces intensifying pressure from all sides. Trump is not only openly criticizing Powell’s rate policies but is also threatening to remove him from office. But the issue is bigger than politics. The Fed’s core mandate — price stability — is under siege.

Trump’s aggressive tariff regime has exceeded Wall Street’s expectations, shaking the market and raising concerns that inflation could resurge. At the same time, bond yields are rising, confidence in U.S. creditworthiness is wavering, and recession signals are flashing. In this environment, Trump’s demand for a rate cut may seem reasonable on the surface, but Powell remains cautious — and for good reason.

What restrains Powell is the haunting legacy of Arthur Burns, a former Fed Chair from the 1970s.

The Shadow of Arthur Burns

Appointed under President Nixon, Arthur Burns is widely considered one of the most criticized Fed Chairs in history. His legacy continues to be invoked because of his politically driven decisions.

Burns supported Nixon’s reelection campaign by accommodating expansionary policies, abandoning the Fed’s independence. He underestimated the threat of rising inflation, believing it to be temporary, and delayed raising interest rates. The result was a prolonged period of high inflation and low growth, now known as stagflation, which severely damaged both the U.S. economy and the Fed’s credibility.

A 1970s Déjà Vu

Today’s situation feels eerily familiar. Since 2021, global inflation surged, and after years of policy tightening, it has now moderated to around 2–3%. However, Trump’s return to tariff wars is destabilizing this fragile balance, distorting markets, and rekindling inflation fears.

Trump is again pressuring Powell to cut rates, just as Nixon pressured Burns. If Powell simply obeys, would it not be fair to ask whether he risks becoming the next Arthur Burns?

Two “Puts” That May Not Exist

Given the current environment, the two types of “puts” that markets typically rely on — Treasury and Fed puts — seem increasingly unlikely.

1. The Treasury Put:Treasury Secretary Bessent is strongly averse to issuing debt for fiscal stimulus. Both she and Trump favor private-sector-led growth over government-led intervention. As such, a fiscal “put” appears off the table.

2. The Fed Put:Powell, under immense pressure and with inflation still uncertain, is unlikely to step in and aggressively support markets through easing — at least not without risking long-term credibility. That’s why markets today appear confused, flip-flopping based on Trump’s statements and shifting expectations.

   
   

What If the Fed Does Cut Rates in May?

If the Fed surprises with a rate cut in May, and investors believe Powell has not compromised the Fed’s integrity, it could trigger a massive rally in risk assets.

Why?

• Inflation is still moderate.

• Corporations, anticipating tariffs, are stockpiling, giving the illusion of strong demand.

• A rate cut would improve liquidity.

• Global tariff negotiations might ease tensions.

@K3 Lab

These conditions could create the perfect storm for a short-term bull market.

But would that be the happy ending?

Absolutely not.A euphoric market surge could be followed by a deeper crisis. That’s why investors should remain cautious and focused on long-term fundamentals, rather than reacting emotionally to near-term volatility.