Late Tuesday night, US President Donald Trump surprised everyone by stating that he has “no intention of firing” Federal Reserve Chair Jay Powell. This was quite a turn-around by the President, after he repeatedly and publicly berated Powell for being late in cutting interest rates. So much so that many started wondering if Trump was serious about taking the unprecedented step of firing Powell.
This has never happened, and for a good reason: The independence of the US Fed, which runs US monetary policy, is the central reason why investors the world over place their trust in the US dollar. The independence of the US Fed is the essential guarantee that the US dollar will not be allowed to lose value (read suffer inflation).
So Wednesday started on this cheery note and the stock markets zoomed ahead, trying to make up for losses. To be sure, even after ending in the green, most benchmark indices in the US are anywhere between 7% to 14% below where they were at the start of 2025.
Reforming IMF and World Bank
The stock market rally did not sustain as the Treasury Secretary Scott Bessent gave a searing speech about how the Bretton Woods twins — the IMF and the World Bank — seem to have lost their way over the years.
On the IMF, Bessent said: “…the IMF has suffered from mission creep. The IMF was once unwavering in its mission of promoting global monetary cooperation and financial stability. Now it devotes disproportionate time and resources to work on climate change, gender, and social issues.”
On the World Bank, he said: “The Bank should no longer expect blank checks for vapid, buzzword-centric marketing accompanied by half-hearted commitments to reform. As the Bank returns to its core mission, it must use its resources as efficiently and effectively as possible.”
There was also a distinct sense that the US, being the most influential force behind IMF and WB, could weaponise the two institutions to take a harder stance against China. For instance, Bessent said that “In line with its core mandate, the IMF needs to call out countries like China that have pursued globally distortive policies and opaque currency practices for many decades.”
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A little later in the speech with reference to the World Bank, Bessent said: “Treating China—the second-largest economy in the world—as a “developing country” is absurd.”
Wait for Q3 (July to September) for clarity on Trump tariffs
Reuters reports that Bessent said that ‘the third quarter of this year is a “reasonable estimate” for achieving clarity on the ultimate level of Trump’s tariffs, and said he was not concerned about the IMF’s steep U.S. growth downgrade by nearly a full percentage point to 1.8% for 2025, a cut due largely to Trump’s tariffs, retaliation and the uncertainty that they are causing.’
To be sure, Bessent also clarified that existing levels of tariffs that the US and China have imposed on each other amount to an embargo and that they would have to come down before a trade deal can be worked out. At the time, Bessent ruled out US unilaterally cutting tariffs on China.
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Bessent also added that India is “pretty close” to an agreement with the US.
© The Indian Express Pvt Ltd
