(Bloomberg) — Financial markets stand to temper any potential attempt by Donald Trump to exert too much pressure on the Federal Reserve’s independence should the former Republican president win the US election in November, according to JPMorgan Chase & Co.
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While the US central bank has features that help insulate it from being controlled by the president, there are less-conventional ways in which the White House could try to pressure monetary policy, the bank’s US chief economist Michael Feroli wrote in a note to clients on Thursday. One direct way would be by removing and replacing Jerome Powell at the helm of the Fed — a move that legal scholars say would be difficult.
“Another possible check on an attempted removal of a sitting Fed chair is the reaction of financial markets. As president, Trump was very attuned to asset prices as a scorecard on his administration,” Feroli wrote. “Ousting a chair as respected as Powell could provoke sharp reaction in markets, possibly raising Treasury borrowing costs and threatening the dollar’s reserve currency status.”
Central bank independence has come into focus in the months leading up to the November election, in which Trump will face off with Vice President Kamala Harris at the polls just days before the Fed announces its next interest-rate decision. While Feroli wrote that a Harris victory would lead to a continuation of the current relationship between the White House and policymakers, “there are more interesting questions following a Trump victory.”
Both supporters and opponents of Trump have questioned whether he would, if reelected, seek to reduce the autonomy of the Fed. The Republican himself said, in an August press conference, that he felt strongly the president should have a “say” on interest-rate policy. Trump previously said he would allow Powell, whom he had discussed firing in 2018, to serve out his term but wouldn’t reappoint him.
US Treasuries are fresh off a five-month gaining streak, the longest since 2010, as the Fed embarks on its interest-rate cutting cycle. And a Bloomberg gauge of the dollar is rallying this week, bringing its advance for the year to about 1.6%. Even the S&P 500 Index has been soaring this year to a series of fresh records.
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