Worries over Fed Independence Next to Weigh on Markets

• The question of Fed independence is the next worry for markets, and it has generated a risk-off tone as trading begins. President Trump’s comments last week expressing unhappiness with Fed Chair Powell and the claim he can oust him if he wants to, has unnerved financial markets already dealing with non-stop tariff news. It’s a potent brew that we hope doesn’t boil over into something worse. Unfortunately, the data calendar is fairly light this week, clearing the field for DC headlines dominating the trading action. Currently, the 10yr opens the week yielding 4.40%, up 7bps on the day, while the 2yr is yielding 3.78%, down 2bps.

 

• This week’s discussion topic is Fed Independence, or the lack thereof. This all got started with President Trump’s comments last Thursday where he expressed dissatisfaction with Powell in being late with policy decisions. First, in Trump’s view, was the belated hiking cycle after inflation had run up to multi-decade highs. Now, the pressing complaint from Trump is for rate cuts to recommence. With the ECB cutting rates on Thursday Trump feels the Fed should resume its rate-cutting ways as well, but Powell’s comments from Wednesday were most assuredly not setting the stage for rate cuts anytime soon.

 

• That led to the Trump comment that he was not happy with Powell and could have him fired if he wanted to. While the exact legal language is, “termination for cause”, many feel Powell’s timing may be questioned he hasn’t provided the “cause” piece of the puzzle, and we certainly feel that way. But in watching Trump maneuver so far in this term, the market is not comfortable that Powell is safe. Global markets have relied on Fed independence and Powell is generally regarded as a solid steward of the institution. Upsetting that reality will add another significant layer of market uncertainty which is why we are seeing some risk-off trades this morning.

 

• Unfortunately, the potential tape bombs from this subject won’t have to contend with a heavy data calendar this week. It’s a pretty sparse affair with some reginal Fed surveys tomorrow, the S&P Global preliminary April PMI series, and the Fed Beige Book of economic conditions both on Wednesday.

 

• On Thursday, the preliminary Durable Goods Orders for March will be released and then a final look at University of Michigan Sentiment on Friday. Durable goods are expected to be decent, although off some from the February levels. The big shifts coming from tariff maneuvers will most likely be seen in some of the April numbers so this report may get short attention as being somewhat stale, despite the “preliminary”  title.

 

• On Wednesday we also get a decent amount of Fed news in addition to the Fed Beige Book.  Chicago Fed President Austan Goolsbee as well as Fed Governors Christopher Waller and Adriana Kugler are scheduled to talk, and it will be interesting to see if any of the above dip into the independence question after Trump opened that door. It’s probably best to stick to one’s knitting as they say, but Fed officials are a proud lot and hold dear their independence, so something just may slip.

 

• Through all the market volatility, and never-ending stream of headlines from the White House, and the somewhat hawkish talk from Fed Chair Powell on Wednesday, the futures market is still solidly in the June rate-cutting camp.  The US dollar, meanwhile, is seeing the impact of lessening faith in the US hegemony over global financial matters.

---

Futures Still Predicting Rate Cut at June FOMC Meeting

---

Trump’s Comments on Powell’s Future have Dollar Dropping Again

---

And It Has Investors Moving More to Cash