SINGAPORE, Jan 12 (Reuters) – Tensions between the White House and the Federal Reserve escalated sharply over the weekend, with the Fed chairman saying the government had threatened him with criminal prosecution related to renovations to the Fed headquarters.
Chairman Powell called the threats a “pretext” aimed at putting pressure on the Fed to cut interest rates. The U.S. dollar fell across the board, U.S. stock futures fell, and Treasury bond futures rose.
Here’s what investors and market analysts are saying about the divergence:
VISHNU VARATHAN, Head of Macro Research, Asia ex-Japan, Mizuho, ​​Singapore
“The issue of Fed independence is very active right now and will likely be re-evaluated every few meetings.
“I think I’m still not sure how sustained and confrontational the attacks on the Fed might be. At some point, Trump could still appoint someone with some credibility and allow that person to run the show — so that’s probably why markets haven’t panicked yet.”
ANDREW LILLEY, Chief Rates Strategist, Barrenjoe, Sydney
“Trump is pulling at the loose thread of central bank independence. I don’t even believe he expects Chairman Powell to be charged… The only reason he’s taking these steps is because he knows he’s not going to control the Fed, so he wants to apply as much undue pressure as possible.
“It’s not good. Don’t get me wrong, but I think it’s going to get nowhere. Investors won’t be happy about it, but it shows that Trump really has no other levers to pull. The cash rate will stay where the majority of the FOMC wants it to be.”
(Reporting by Tom Westbrook ‌ and Gregor Stuart Hunter in Singapore and Michelle Price in New York; Editing by Muralikumar Anantharaman)
