JPMorgan said that if former President Trump wins the U.S. election in November, financial markets may temper any potential attempts by Trump to put too much pressure on the Federal Reserve's independence.
Michael Feroli, chief U.S. economist at JPMorgan Chase, wrote in a note to clients on Thursday that while the Fed has certain mechanisms to avoid direct control by the president, the White House may try to pressure monetary policy in less traditional ways. One direct way is to remove Fed Chairman Powell. But legal scholars say that move will be difficult.
"Another factor that could prevent the Fed chair from being replaced is the reaction of financial markets. As president, Trump is very fond of using asset prices as a scorecard for his administration," Feroli wrote. "Removing a well-respected Fed chair like Powell would likely provoke a strong market reaction, potentially raising borrowing costs for U.S. Treasuries and threatening the dollar's reserve currency status."
Fed independence has come under the spotlight in the months leading up to the November election, with Trump set to face off with Vice President Harris just days before the Fed announces its next interest rate decision.
Feroli noted that a Harris victory would lead to a continuation of the current relationship between the White House and the Fed, but that "there are more interesting questions after a Trump victory."
Trump's supporters and opponents have questioned whether he would seek to reduce the Fed's autonomy if he is re-elected. The Republican candidate himself said at a press conference in August that he strongly believes the president should have a "say" on interest rate policy. He has previously said he would allow Powell to complete his term but would not reappoint him. Trump and Powell have a long history of grievances, and he discussed firing Powell in 2018.
Even as the Federal Reserve embarked on a rate-cutting cycle, U.S. Treasuries just ended a five-month winning streak, the longest since 2010. The Bloomberg Dollar Spot Index rose this week, bringing its gains for the year to about 1.6%. Even the S&P 500 has surged to a series of new records this year.
The article is forwarded from: Jinshi Data
