But what came next is even more bewildering. The markets have been concerned for months about Trump’s attempts to interfere with the independence of the Fed to determine interest rates. But instead of an equities and money market meltdown, the response so far has been benign.
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Could this be another TACO (Trump always chickens out) moment? In other words, have the markets placed their bets on Trump bloviating an extreme position only to ultimately back away from it – a la the imposition of massive tariffs last year.
There were many investors who got caught by Trump’s partial reversal on tariffs last year. They sold equities when Trump announced tariffs but were then wedged when the market quickly recovered.
Or could it be that investors have been numbed by so many outlandish moves from the US president that they are experiencing Trump fatigue?
The hangover from New Year’s Day is barely over and Trump has already used the military to attack Venezuela and capture its leader, has threatened other countries including Colombia and Cuba and discussed a takeover of Greenland.
So heads were already spinning about the future of a rules-based order in a geopolitical sense, and then Trump went ahead with this week’s coup at the Federal Reserve.
One school of thought says that some investors are mulling a win-win scenario. If Trump loses his battle with the Fed then its independence will be maintained, which will be a net positive for global market, but if Trump wins and forces interest rates to go down, that would also provide a short-term boost to the sharemarket.
But attacking the spine of US institutions like the Federal Reserve has far more serious ramifications for US democracy and its fundamental institutional pillars.
President Donald Trump and Federal Reserve chairman Jerome Powell toured the Fed’s office renovation in July.Credit: AP
Janet Yellen, who served as Fed chair between 2014 and 2018 and was among the statement’s signatories, summed it up, saying that the investigation constituted the most significant attack ever on the central bank’s independence.
“The fact that he is willing to go that far to intimidate a Fed official suggests he’s going to stop at nothing to get his way with respect to Fed policy,” she said.
“If you can bring charges for no reason whatsoever against your enemies, we’re no longer living in a society governed by the rule of law.” “That’s the end of Fed independence.”
It’s a scenario that is deeply unsettling and would undermine the rules-based order of the global financial markets. But you can bet Powell is not going to make it easy for Trump.
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