Trump’s Pressure on Fed Is Just the Latest US Policy Concern for Global Investors

Key Takeaways

• President Trump’s attempt to fire a Fed governor is raising alarm among money managers and analysts outside the US.
• Trump’s efforts to put pressure on the central bank adds to a list of concerns about US government policies.
• Moves to undermine the independence of the Fed raise worries about the potential for higher long-term inflation and reduced investor trust in US assets.

President Donald Trump’s unprecedented attempt to fire a Federal Reserve governor is just the latest in a string of moves that has some investors and strategists outside the United States questioning how they view US investments.

On Aug. 25,Trump said he had “sufficient reason” to fire Fed Governor Lisa Cook, accusing the Biden appointee without evidence of submitting fraudulent information for a mortgage application. Cook replied that Trump had no power to dismiss her and refused to resign. A protracted legal dispute seems likely, but more important, analysts and money managers say this raises critical questions about the Fed’s independence.

The attempt to fire Cook comes after repeated public statements and social media barbs from Trump aimed at Fed Chair Jerome Powell throughout this year. The president has criticized the Fed chair for not lowering interest rates more quickly. This also follows Trump’s firing of Bureau of Labor Statistics commissioner Erika McEntarfer on Aug. 1, when he questioned the quality of key US economic data without evidence.

These events come in the wake of the severe market turmoil and economic uncertainty sparked by Trump’s announcement of aggressive tariffs in April. Investors have also expressed increasing concern about the exploding US budget deficit, which will be worsened by the tax-and-spending legislation pushed by the White House and passed by Congress this summer.

Markets have taken Trump’s latest attempt to pressure the Fed largely in stride, but investors are focusing on the longer-term implications. “There is significant political risk in the US now,” says Darren Sissons, partner and portfolio manager at Campbell, Lee & Ross Investment Management in Ontario, Canada. “The second Trump presidency has proven to be a volatility magnet, with every day a new drama. The equally important issue is the dismantling of the rule of law and any obstacle to the president’s agenda.”

Worries About Fed Independence Grow

Though investors may be hungry for rate cuts in the shorter term, onlookers say Trump’s interventionist approach with the Fed threatens both US financial institutions’ independence and the stability of the United States’ advanced trading markets.

“Undoubtedly, this is an attack on the independence of the Fed,” says Joshua Mahony, a UK-based analyst at Scope Markets. He points to the widest differential between short- and long-term yields (as measured by US Treasury two-year notes and 30-year bonds) since 2022 as reflecting investor worries. “This highlights that while markets perceive Trump’s moves as bringing additional rate cuts over the near term, it also brings increased instability concerns, as the Fed bases monetary policy decisions on the desires of the president rather than economic theory.”

Why the Fed’s Independence Matters to Markets, the Economy, and Your Wallet

David Morrison, a UK-based analyst at Trade Nation, says investors are becoming “increasingly concerned” about Trump’s actions. “Mr. Trump has launched a series of personal attacks on Fed Chair Powell and has been calling for the US central bank to slash its rate to 1.00% from their current level of 4.25%-4.50%. The president is also in the process of loading the roster of Fed governors with his own appointees.”

What Politicization of Economic Data Means for Investor Trust

It’s not just the Fed. Political interventions in the bodies that create and deploy financial data may backfire, according to analysts and money managers.

“President Trump’s firing of the head of the Bureau of Labor Statistics on the back of poor jobs numbers was foolish,” wrote UK-based Chris Clothier, co-chief investment officer at CG Asset Management, in a note on Aug. 13. “The move may also prove counterproductive. Should the jobs data improve in coming months, market participants are likely to discount such improvements, seeing an unseen thumb on the statistical scales.”

The reliability of US government data directly affects the pricing of markets and potentially leaves decision-makers with greater long-term uncertainty. Anne O. Krueger, an American former World Bank chief economist and former deputy managing director of the International Monetary Fund, wrote in a blog post that the BLS’ reputation for independence and accuracy has been “irreparably damaged” following its chief’s dismissal.

What Trump’s Removal of the Bureau of Labor Statistics Commissioner Will Mean for Investors

“When the reliability of official figures is in doubt, uncertainty grows, leading to poor decision-making,” Krueger wrote. “Even if [Trump nominee E.J. Antoni] were qualified [to take over the BLS], which he is not, serious doubts would remain about whether BLS estimates could be trusted. Loss of confidence in the agency’s data will only deepen the uncertainty facing private and public decision-makers. Worse still, these doubts are likely to extend beyond labor statistics, especially when figures such as inflation rates conflict with Trump’s political agenda. The consequences for the US and global economy, not to mention for democratic governance, could be catastrophic.”

US Fiscal Concerns Grow as Well

Along with the risks of politicizing the Fed and the production of economic data, analysts also point to the Trump administration’s handling of fiscal policy. The US’ mounting debt is also a concern after the tax-and-spending bill was signed into law in July. Many analysts say the legislation will worsen the already-huge federal budget deficit.

“Continuing fiscal profligacy is a mounting problem,” says Sissons of Campbell, Lee & Ross. “The US is building a substantial and growing government debt mountain. The drivers are both unrestrained monetary and fiscal spend. While the Japanese debt strategy experience suggests US government indebtedness has room to run, the unintended consequences of that Japanese debt experience is not positive: it [means a] declining standard of living.”

“The business case to overweight the US here, given its many issues, is not compelling,” Sissons says. “Other markets offer significant risk-adjusted opportunities, and in many cases, they offer superior return dynamics to those available via premium-priced US names.”