Introduction: Trump escalates attack on Federal Reserve in move to fire governor
Donald Trump has moved to oust Lisa Cook, a governor at the Federal Reserve, in his latest attack on the American central bank.
It is an unprecedented intervention by a US president, which threatens to undermine the independence of the central bank of the biggest economy in the world.
Trump posted a letter on his social media platform Truth Social on Monday, claiming he had “sufficient cause” to fire Cook, based on allegations she made false statements on one or more mortgage loans.
Cook, who is the first black woman to serve on the Fed Board in Washington, has sad that Trump has no authority to fire her and that she will not quit.
She said:
I do intend to take any questions about my financial history seriously as a member of the Federal Reserve and so I am gathering the accurate information to answer any legitimate questions and provide the facts.
The news has spooked markets, with the US dollar and long-dated Treasuries both falling on Tuesday. The US dollar index, which tracks the greenback against a basket of other major currencies, fell by 0.1%.
Trump’s latest attack on the Fed follows “relentless pressure” on Fed Chair Jerome Powell, notes Tony Sycamore, of the broker IG. He says:
In the short term, the removal of Cook who has tended to vote with the FOMC majority, increases the likelihood of a Fed rate cut at the September FOMC meeting. A prospect expected to weigh on the US dollar and lend support to equities and other risk assets, including Bitcoin.
However, beyond the “sugar hit” of a rate cut in September, recent developments around key Fed personal, heighten concerns over rising political interference, raising the risk that traders view the Fed as politically compromised.
This could trigger a rerun of the “Sell US assets” theme seen earlier this year. In such a scenario, both the US dollar and US equities could experience sharp declines.
The agenda
-
1:30pm BST: US durable goods orders
-
2:00pm BST: Case-Shiller US house prices
-
3:00pm BST: US CB consumer confidence report
Share
Key events
Show key events only
Please turn on JavaScript to use this feature
Trump’s attempt to intervene at the Federal Reserve has spooked investors, with gold, which is viewed as a safe haven asset, rising this morning. Economists at Deutsche Bank write:
Gold spiked by +1% and is holding on to most of this overnight gain, while futures on the S&P 500 (-0.14%) and the Nasdaq (-0.18%) are modestly lower.
Meanwhile, the Treasury curve has seen a sizeable steepening, with the 2yr yield trading -0.7bps lower but the 10yr up +2.9bps and the 30yr +4.5bps to 4.93%. This has brought the 2s30s slope to 122bps, its steepest since January 2022 when the Fed had not yet started its post-Covid hiking cycle.
Share
Cook’s removal could help Trump’s push for lower interest rates
Cook’s removal could push the Fed to a more dovish stance, say economists at Deutsche Bank. They write:
Were Cook’s dismissal to hold, it would open up another seat for Trump to fill on the seven-person Federal Reserve Board. With Stephen Miran nominated for the seat recently vacated by Governor Kugler and with Governors Waller and Bowman dissenting in favour of a rate cut at the July meeting, this would increase the prospects of a dovish majority on the Board.
Cook, who was appointed by President Joe Biden in 2022, was working a term that was not due to expire until 2038. If she were to be removed, it would give Trump the change to secure a four-person majority on the Fed’s board of governors.
Market bets suggest there is an 82% chance that the Fed will vote to cut its key interest rate at its next meeting in mid-September. However, economic data coming out this week on inflation and the labour market could still sway the decision.
Here is Justin Wolfers, an economics professor at the University of Michigan, drawing a parallel with Turkey’s president Recep Tayyip Erdoğan.
Share
Introduction: Trump escalates attack on Federal Reserve in move to fire governor
Donald Trump has moved to oust Lisa Cook, a governor at the Federal Reserve, in his latest attack on the American central bank.
It is an unprecedented intervention by a US president, which threatens to undermine the independence of the central bank of the biggest economy in the world.
Trump posted a letter on his social media platform Truth Social on Monday, claiming he had “sufficient cause” to fire Cook, based on allegations she made false statements on one or more mortgage loans.
Cook, who is the first black woman to serve on the Fed Board in Washington, has sad that Trump has no authority to fire her and that she will not quit.
She said:
I do intend to take any questions about my financial history seriously as a member of the Federal Reserve and so I am gathering the accurate information to answer any legitimate questions and provide the facts.
The news has spooked markets, with the US dollar and long-dated Treasuries both falling on Tuesday. The US dollar index, which tracks the greenback against a basket of other major currencies, fell by 0.1%.
Trump’s latest attack on the Fed follows “relentless pressure” on Fed Chair Jerome Powell, notes Tony Sycamore, of the broker IG. He says:
In the short term, the removal of Cook who has tended to vote with the FOMC majority, increases the likelihood of a Fed rate cut at the September FOMC meeting. A prospect expected to weigh on the US dollar and lend support to equities and other risk assets, including Bitcoin.
However, beyond the “sugar hit” of a rate cut in September, recent developments around key Fed personal, heighten concerns over rising political interference, raising the risk that traders view the Fed as politically compromised.
This could trigger a rerun of the “Sell US assets” theme seen earlier this year. In such a scenario, both the US dollar and US equities could experience sharp declines.
The agenda
-
1:30pm BST: US durable goods orders
-
2:00pm BST: Case-Shiller US house prices
-
3:00pm BST: US CB consumer confidence report
Share