Investor unease is reportedly mounting as President Donald Trump’s escalating interference in Federal Reserve affairs sends ripples through financial markets.
Trumpannounced on Monday night that he was firing Fed governor Lisa Cook “effective immediately”, citing allegations of mortgage fraud. Cook’s removal would allow the president to select a replacement more open to interest rate cuts.
Cook’s attorney, Abbe Lowell, said in a statement on Tuesday that “we will be filing a lawsuit challenging this illegal action,” paving the way for a legal clash between the senior Fed policymaker and the Trump administration.
According to an article published in the Financial Times on Tuesday, harsh criticism of Fed Chair Jay Powell, the surprising appointment of Stephen Miran to the Fed’s rate-setting board, and the ousting of a senior statistics official have collectively heightened fears over institutional stability.
The article noted that for decades, the independence of central banks and the reliability of economic data have formed the bedrock of confidence in developed economies. U.S. Treasury yields, integral to global interest-rate benchmarks, rest on that trust. Recent developments under the Trump administration, however, threaten to unravel these very foundations.
Deutsche Bank analyst George Saravelos told FT: “There is no question in our view that the Fed is now subject to intensifying fiscal dominance risks.”
His words carry added weight given the swelling disconnect between political objectives and monetary policy.
Investors, he warned, are not only igniting concern but also letting their guard down. “What is a bigger surprise to us is that the market is not more concerned,” he added, noting that investors are being “too complacent” in the face of escalating institutional strain.
"Economists and investors say Trump’s pressure on the Fed is the most prominent example of a new era of so-called fiscal dominance, in which central bank policy becomes more dictated by governments’ need to keep borrowing costs low to service huge debts," the article noted.