In a recent survey, economists have cautioned that the financial markets are not fully considering the potential risks of President Donald Trump’s ongoing assaults on the Federal Reserve.
Economists Fear Fed's Independence At Risk Post-Powell
The economists, who were part of a survey conducted by the Financial Times, expressed concerns about the possible consequences of Trump’s actions against the Fed. These include a rise in inflation and a loss of faith in U.S. government debt.
The survey, which included 94 economists from the U.S. and Europe, highlighted fears that the Fed’s ability to regulate interest rates and manage inflation could be compromised. This could lead to a permanent shift in the Fed’s focus on job creation and reducing government borrowing costs after the end of Chair Jerome Powell‘s term next year.
Despite the potential risks, the economists noted that the Fed’s independence could be curtailed by 2029, with a majority predicting a shift in the central bank’s priorities after Powell’s term ends.
The economists also emphasized that Trump’s attacks could have a detrimental impact on the U.S. economy, potentially leading to increased inflation and a loss of investor confidence in U.S. Treasuries.
Karsten Junius, of J Safra Sarasin bank, said the Fed may need to "fight for its survival or risk a U.S. dollar crisis". At the same time, Derek Tang of LH Meyer stated, "Financial markets might not push back enough to make a difference."
Trump’s Fed Attack Could Pose ‘Serious Danger’ To The Economy
Trump’s repeated criticisms of the Fed, particularly for not reducing rates, have raised concerns. The White House further escalated the situation by dismissing Fed governor Lisa Cook in August, sparking a legal battle over the extent of the White House’s influence on the central bank.
The move has been criticized by former Fed Chair Janet Yellen for its potential to undermine the Fed’s independence and credibility.
The concerns raised by economists also echo the sentiments of European Central Bank President Christine Lagarde, who warned that the U.S. Federal Reserve losing its independence would pose a “serious danger” to the global economy, reported The South China Morning Post.
Price Action: On a year-to-date basis, SPDR S&P 500 ETF Trust (NYSE:SPY) and Invesco QQQ Trust Series 1 (NASDAQ:QQQ) surged 10.5% and 11.79%, respectively, as per data from Benzinga Pro.
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