Donald Trump’s chaos has left investors with frayed nerves

Traders work on the floor of the New York Stock Exchange during morning trading in New York City. Photo by Michael M. Santiago/Getty Images files

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Gauges of the market mood typically pick a point between fear and greed. What we have now is not quite either of those. It is a universe where muddling through and imminent disaster exist side by side at all times and investors have no clue which way to jump. It’s exhausting and infuriating, it litters markets with opportunities to lose money, and it’s here to stay.

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“He’s behind you! Oh no he isn’t!” as the analysts at Rabobank rather deftly put it last week. No prizes for guessing the identity of the pantomime villain here, of course. It’s Donald Trump, whose rethinks on high-stakes economic policy are almost too speedy and too numerous to count.

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To take one of the biggies, a couple of weeks ago the U.S. president declared on his Truth Social platform that the “termination” of “too slow” Federal Reserve chair Jerome Powell could not come fast enough, a grotesque and reckless assault on the most important position in global finance. Later, a reporter asked Trump if he was trying to remove Powell from office. “Yeah,” he replied. “If I want him out, he’ll be out of there real fast. Believe me.”

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Set aside for a moment that this is, right now, not true. Trump cannot defenestrate Powell before his time is up a year from now, unless and until the administration can find a legal loophole. In any case, now we are suddenly encouraged not to worry. By last week, Trump was telling reporters he had “no intention” of firing the Fed chief, as if the idea had never occurred to him. (George Orwell’s “We have always been at war with Eastasia” springs to mind.)

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So, no harm done, right? Not quite. For one thing, the cat is out of the bag. The Fed’s independence has been undermined. We now know with even more certainty than before that Trump wants a Fed chair who will cut interest rates in an effort to fix the economic mess he is making, even despite the risk that inflation bubbles up again.

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In addition, this whole sorry tale introduced a completely pointless and unnecessary bout of volatility to already jittery markets. This is how market accidents happen. The broadside against the Fed first gave investors the heebee-jeebies, making a bad run for the U.S. dollar, stocks and U.S. government bonds even worse. The climbdown had the opposite effect, with stocks and the dollar picking up.

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This is, of course, not the only sphere in which the signals from Trump and his administration are far from clear. Just in the past week, markets jumped after Treasury secretary Scott Bessent said the trade war with China was “unsustainable,” a hint that progress towards de-escalation was at hand. But Chinese officials later said no negotiations were taking place at all. Again, this is all goosing markets higher and lower without any certainty that anything has changed. Hedge fund and trader Ken Griffin put it well when he remarked that tariff talks have entered a “nonsensical place.”