Markets are heading into the new week on edge, and Dr Komal Sri-Kumar is warning investors to buckle up. “If Powell holds rates, Trump will lash out. If Powell cuts, markets might see it as political capitulation. It’s a no-win scenario,” he says. The standoff between the Federal Reserve and former President Donald Trump is now more than theatre—it’s starting to shape policy expectations, rattle confidence, and fuel a fresh wave of global financial volatility.
The tariffs—10% across the board, and as high as 54% on China—did more than make headlines. They sparked retaliatory moves from China, which slapped on a 34% duty of its own and threw in restrictions on rare earth exports for good measure. The European Union wasn’t spared either, hit with a 20% tariff. Sri-Kumar calls this a full-blown trade war. “Historically, trade wars don’t end with the first punch. They drag on, escalating until the economic pain forces someone to give in,” he says.
Markets didn’t wait for the next round. European equities tumbled between 4 and 5%, and bond yields climbed in Germany, France and the UK. Investors dashed for the usual safe havens—US Treasurys and Japanese Government Bonds (JGBs). The US 10-year Treasury, which started the week at 4.2%, plunged to an intra-day low below 3.9% before ending at 4%. Japan’s 10-year JGB yield took an even sharper dive from 1.5% to 1.17%.
And then there’s gold. The metal flirted with $3,200 per ounce—up from $2,641 earlier this year. That’s a 21% climb, fuelled by growing fears that central banks might not act quickly enough to counter inflationary pressures. Sri-Kumar points to this rally as a symptom of global anxiety. “Investors aren’t just hedging. They’re worried the people in charge are either distracted or divided.”
Which brings us back to Powell. Expectations had built around the idea of a “Powell Put”—that the Fed would cut rates if the economy took a knock. But Powell’s speech to business journalists in Arlington offered no such comfort. Instead, he conceded the tariffs were larger than anticipated and their inflationary effects still uncertain. Translation? Wait and see.
Sri-Kumar isn’t impressed. “Powell doesn’t have a great track record forecasting inflation,” he says. “He can’t justify cutting rates now when these tariffs are going to push prices up across the board.”
But waiting is unlikely to please Trump. Just minutes before Powell’s talk, Trump posted on Truth Social: “CUT INTEREST RATES, JEROME, AND STOP PLAYING POLITICS!” It was hardly subtle, and it won’t be the last such missive. With the Federal Open Market Committee (FOMC) meeting on 6–7 May, Trump’s pressure is only going to increase—especially if early inflation indicators begin to rise.
Sri-Kumar warns of a messy few weeks ahead. “If Powell holds rates, Trump will lash out. If Powell cuts, markets might see it as political capitulation. It’s a no-win scenario.”
And there’s a wildcard in the mix. Treasury Secretary Scott Bessent, who once floated the idea of a “Shadow Chair” to advocate a different monetary line, could revive that proposal. That would throw fuel on an already chaotic situation. “Investors might genuinely start to question who’s setting monetary policy,” says Sri-Kumar.
The picture is as jittery as it is unresolved. Stocks have been hammered. The S&P 500 shed 10% in just two days, as investors absorbed both the earnings hit from the tariffs and the Fed’s unwillingness to act swiftly. The policy vacuum is palpable. And the political noise, Sri-Kumar argues, is now feeding into economic volatility.
What happens next will depend on how the FOMC reacts in May, and how Trump responds in real time. If inflation data starts to creep up—as expected—Powell will be in a corner. Cut, and he’ll be accused of bending to political pressure. Hold, and the former President will likely double down, demanding more rate relief in the face of rising prices.
Sri-Kumar doesn’t expect calm anytime soon. “You’ve got a former President waging a tariff war and pressuring the Fed at the same time. Markets are getting battered from both sides. And unless one of them backs off—which seems unlikely—we’re going to see more of the same, or worse.”
So keep an eye on gold, inflation readings, and Powell’s speeches. But most of all, watch Truth Social. That might be the first place we see the next policy move—if not from the Fed, then from a man who’s quite happy tweeting his way into the centre of US monetary drama.
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