American Chaos

Navigating the storm.

The current economic environment cannot be discussed without acknowledging the agent of chaos that is driving all of the current gyrations that are happening with markets, businesses, global relations, and governmental policy. Since taking office as the 47th President, Donald Trump has moved swiftly to enact a number of his priorities. The speed and severity of those actions has often been far beyond what people were expecting. The result has been almost daily chaos.

Furthermore those actions have often resulted in such stark responses in the markets, among political leaders, and even among judges that many of them get quickly altered, reduced, or flat out reversed.

Two primary events from an economic standpoint have been the enactment of various tariffs and the constant discussion about replacing the Fed chairman with someone who will do what the President wants which is namely to lower interest rates even though the Fed does not control the bond market which is a far more important rate than the Fed Funds rate. Any attempt to force down the Fed Funds rate from the Executive Branch would almost surely cause a bond panic far worse than what happened in the short week after the Liberation Day tariffs, with rates skyrocketing and doing exactly the opposite of what the President wants. I am not sure if he knows this and just says it for effect anyway, or if he doesn’t understand the interconnected nature of monetary policy and markets. Based on the regular and sharp reversals of policy especially after discussions with Bessent, I suspect it is more likely the latter. Luckily Bessent is very capable and is there to explain the finer details of the bond market to him.

This week we saw more examples of that chaos play out again in the markets just like they have been for most of the past 3 months. Last week and Monday of this week the President spent considerable time attacking Fed Chair Jerome Powell for not lowering interest rates, made comments about him being terminated, followed by White House advisors saying the President was exploring ways to fire the Fed Chair which is clearly illegal and would destroy the notion of an independent Fed. Markets reacted very poorly to this entire turn of events with stocks going down considerably, bonds falling again, and the dollar selling off in a trifecta vote of waning confidence in the stability of the US financial system, similar to what happened before the abrupt about-face tariff pause.

However on Tuesday Treasury Secretary Bessent made comments that he believed there would be a de-escalation in the China tariffs in the very near future. This soothed markets and they recovered nicely.

https://www.cnbc.com/2025/04/22/bessent-trump-tariffs-china-deescalate.html

Then it was reported that advisors and business leaders warned the President of financial chaos from the uncertainty around the stability of the Fed chair's position and President Trump made another about-face on the Fed Chairman in a statement late Tuesday to reporters where he said, "I have no intention of firing him."

https://www.cnn.com/2025/04/23/business/stock-market-dow-jerome-powell-fed-trump/index.html

This again caused a huge sigh of relief and markets rallied across the board again on Wednesday.

So what does this all mean? It means this is normal. This is to be expected. This is the operating agenda of this administration. There is going to be one chaotic event after another. Thus far what we have seen is that calmer heads are still able to prevail and when the chaos gets too intense one of them gets the President's ear and gets him to back down and change course.

So what should we do? Sit on your hands. This too shall pass. If anyone thinks they have any idea what happens next I don’t know how they could as even the President’s plans appear very “flexible” which is a word he has used multiple times to describe his plans.

America is a great country, with great companies, great people, great ingenuity, and a great Constitution that guides us through all sorts of chaos. Different American leaders have created and dealt with different challenges in the past but America has risen to meet them all and there is no reason to believe this time will be any different. Remember where we are and where we have been. We survived the Great Depression of the 1930s (Interestingly almost surely made worse by the Smoot-Hawley tariffs of 1930.) We survived WWII of the 1940s and helped Europe defeat a threat to the entire world at great cost in talent and treasure. We survived the stagflation of the 1970's and what became known as Jimmy Carter's Misery index (A combination of inflation and unemployment that was in the low 20% range in 1980. Today it would stand at about 7%.)

Since then we have had a few shorter challenges like the dot com crash, the housing crash / Great Recession, and COVID / inflation, but we recovered from all of those fairly quickly.

This current environment is not worse than any of those, so we should not over-react. The fact that most of this pain is self inflicted is new at least since WWII and makes this a bit harder to accept, but America is much bigger than one man or one event. America is an idea that is fought for by 340 million people every day and they don't give up.

Chaos is here to stay for a while, but the American Juggernaut marches on, undeterred. Chaos might slow her down, but one single agent of chaos even in the highest office in the land is not enough to derail American Exceptionalism. It will overcome. I don't bet on a President. I bet on America. Her torch still burns brightly through every storm she has ever faced.