The Fed's Hint at Stagflation and What Trump’s Push to Fire Powell Means for the Market

The Fed's Hint at Stagflation and What Trump’s Push to Fire Powell Means for the Market

Yesterday, the stock market took a dive after Jerome Powell of the Federal Reserve said a few choice words that are worth dissecting. Beneath the surface of his comments, Powell seems to be hinting at stagflation, the dreaded scenario where inflation remains high, but economic growth stagnates. That alone is concerning, but there's more.

Donald Trump has now ramped up his attacks on Powell, criticizing him for not acting fast enough in the past and even calling for his removal. Here’s the kicker: If the Fed moved as quickly as Trump wants, they might actually have to raise rates—and not lower them. The logic is simple: tariffs are inflating prices, so the natural reaction would be to increase interest rates, not lower them. But if that happens, it could crash the market.

If the Fed were to suddenly increase rates in May to combat inflation, the market would take a huge hit. Investors would flee to Treasuries, driving their prices up and yields down. This would directly help the U.S. reduce interest payments on its $34 trillion debt—a huge benefit for a government drowning in red ink. In essence, the Fed could be pushing to bring down yields as part of a broader strategy to manage debt costs.

But here's the even bigger picture: The Fed’s secondary goal is full employment—and the labor market is showing signs of strength. Unemployment is at 4.3%, which is considered close to the "natural" rate of unemployment. So, why hasn’t the Fed raised rates yet?

Both the S&P 500 and NASDAQ recently hit a death cross, which is a technical signal that the market is in trouble. The markets are showing weakness, and this is just the beginning of what could be a deeper downturn.

Personally, during rallies like today's, it's time to take profits and raise cash for when the market inevitably falls further. History shows that in bear markets, there’s always a second leg down, and we’re officially in one now. Buckle up.