Flight from Dollar Assets Forces Trump to Back Down: High Tariffs and Threats to Fire Fed Chair Powell Eased

TradingKey - After two weeks of a massive flight from dollar assets, U.S. President Donald Trump’s relentless pursuit of high tariffs and his controversial plan to challenge the dollar's dominance by threatening to fire Federal Reserve Chair Jerome Powell have proven unsustainable. Following a stern lesson from the capital markets, Trump quickly softened his stance on tariffs and the independence of the Federal Reserve.

On Tuesday, April 22, Trump stated that the high tariffs imposed on Chinese goods would be significantly reduced. He said that the final tariff rate on China would not remain as high as 145%.

Trump remarked, "We’re going to be very nice and they’re going to be very nice, and we’ll see what happens."

Trump’s latest comments align with statements made by U.S. Treasury Secretary Scott Bessent. On Tuesday, during a closed-door investor summit, Bessent said that the tariff standoff between the U.S. and China is unsustainable, and the world’s two largest economies must find ways to ease tensions.

Bessent emphasized that decoupling from China is not the goal of the U.S. He expects tensions to ease in the coming months, though reaching a larger-scale agreement may take longer.

Since the beginning of the year, Trump’s tariff war against all global trading partners has severely undermined confidence in economic growth of the U.S. His erratic policymaking has also eroded investors’ trust in U.S. policies. This sentiment has driven gold prices to repeatedly hit record highs, surpassing $3,500 per ounce at one point, while the S&P 500 fell more than 10%.

Just as the U.S. bond market turmoil began to show signs of easing, Trump escalated his criticism of Powell’s reluctance to cut interest rates, even challenging the U.S. political system by threatening to prematurely dismiss Powell. 

Wall Street analysts warned that the independence of the Federal Reserve is a cornerstone of the dollar's hegemony, and arbitrarily firing Fed officials could accelerate "de-dollarization."

Under this pressure, Trump began to "soften" his tone on Tuesday. He stated that while he remains dissatisfied with the Fed’s slow pace of interest rate cuts, he has no intention of firing Fed Chair Powell.

Trump claimed that the controversy surrounding some of his remarks had been exaggerated. He expressed hope that Powell would be more proactive in cutting rates, as now is the optimal time for such action.

On Tuesday, the U.S. Dollar Index (DXY) rebounded, rising from below 98 the previous day to as high as 99.64, and is currently trading at 99.20.