26.08.25 - The Fed saga continues
President Trump has fired Fed Governor Lisa Cook. In a letter posted on Truth Social, he stated that he had found “sufficient cause” to terminate her “immediately.” Cook, however, responded that Trump “has no authority to do so” since “no cause exists under the law.” The move adds another chapter to the growing tensions between the White House and the Federal Reserve.
Markets: immediately cheered the news
10-year US Treasury yield returned to the 4.30% level
US dollar weakened
Gold price is climbing
My View: The question is how long the Fed can maintain its independence. Trump has been trying for months to exert influence, pressing for lower interest rates to offset the economic drag from tariffs and to reduce debt-servicing costs.
Higher rates mean higher mortgage payments, leaving consumers with less disposable income. Consumption accounts for roughly two-thirds of US GDP. The ongoing political pressure on the Fed therefore not only threatens institutional independence, but also highlights the delicate balance between monetary policy, politics, and economic growth.
A risk that shouldn’t be ignored: major foreign Treasury holders may lose confidence in Fed independence. If countries like China or Japan were to reduce their holdings, US yields could spike abruptly. We briefly saw such dynamics play out during one night in April this year. A repeat of that scenario could put both markets and the US administration under severe pressure.
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