President Trump has fired Fed Governor Lisa Cook in what is a first for an American president, the removal of a serving member of the Fed.
Analysts see Trump's move as an assault on the independence of the Fed. They say- and they have been saying this for several months now- that Trump's remarks and actions carry the risk of seriously upsetting the financial markets.
The stock market and the bond market, they say, will not take kindly to a move that undermines the ability of the Fed to effectively battle inflation.
Well, that is the theory.
The outcome so far is turning out to be very different.
The markets seem quite unfazed by Trump's latest move or his earlier broadsides against Fed Chairman Jerome Powell. The media notes that the stock market reaction is "muted". The Financial Times seems seriously disappointed that the markets have not fallen off the cliff. It comments:
some analysts are concerned that investors aren’t taking Trump’s cumulative threats on the Fed’s independence seriously enough. Although bond yields jumped on Tuesday, they eased back somewhat over the course of the day.....investors also have shown signs of being lulled into a false sense of complacency.. Ultimately, more severe market ructions might be what is needed to force Trump to pull back from causing greater damage to the central bank and the US economy at large
Well, the "greater damage" just ain't happening.
Could it be that the markets think that Trump is right? That the economy will benefit from cuts in the interest rate? That the fear of inflation getting out of control is exaggerated?
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