 Dollar weakened broadly in thin holiday trading today, dragged down by mounting concerns over the independence of the Federal Reserve. Investor anxiety escalated after White House economic adviser Kevin Hassett indciated that US President Donald Trump is continuing to explore whether he can remove Fed Chair Jerome Powell. While the legal basis for such a move is untested and unclear, the mere suggestion of political interference in the central bank’s policy process has significantly undermined market confidence. This brewing conflict comes amid already heightened uncertainty surrounding US trade policy. Trump’s aggressive use of tariffs, most recently through sweeping reciprocal levies, has put the Fed in a difficult position. Officials including Powell have repeatedly warned that tariffs could simultaneously fuel inflation and suppress economic growth, increasing the risk of stagflation. A sudden crystallization of the threat to Fed independence would not only worsen market volatility but also raise tail risks, potentially triggering a broader loss of faith in US assets. Powell, for his part, has firmly defended the Fed’s independence. In remarks last week, he asserted, “We’re never going to be influenced by any political pressure… Our independence is a matter of law.” He also reminded that Fed governors “are not removable except for cause,” and emphasized the long, fixed terms that protect against political meddling. While the "cause" does not typically include policy disagreements, the intensifying standoff with the White House has cast a long shadow over US institutions. Ad for now, the markets appear to be voting with their feet—out of the Dollar and into alternatives..... |
