Trump Ups The Ante In Feud With Powell

Here we go again then. In a classic Trumpian distraction and bullying tactic, the President has upped the ante in his long-running feud with Fed Chair Powell, after the DoJ sent subpoenas to the Fed, ostensibly in relation to Powell’s testimony on renovations to the Eccles Building last year.

Let's call a spade a spade though. This is nothing to do with building renovations, even if it would be quite ironic for a serial bankrupt property developer to try and pursue that path. Instead, it's Trump acting like little more than a petulant child, throwing a strop yet again because he hasn't got his own way, in this instance lower interest rates. This isn't a construction case, but one that strikes at the very heart of Fed policy independence.

So, what next?

One would expect the Fed to comply with the subpoenas that have issued, though clearly the legal process surrounding that will be a drawn-out one, as well as one that’s blatantly politically motivated.

From a personnel point of view, this complicates Trump’s plans to nominate a successor to Chair Powell, given bipartisan opposition in the Senate to the subpoenas, and with many lawmakers having now said they shan't progress any Fed nominees until these legal matters are settled. Furthermore, I'd argue that this raises the likelihood that the Supreme Court rules in favour of Lisa Cook in her case against Trump’s efforts to dismiss her on allegations of mortgage fraud, while all this also significantly increases the chances that Powell remains as a Governor after his term as Chair expires, in an effort to prevent ongoing threats to the Fed’s independence.

For markets, all this again speaks not only to the ridiculously volatile nature of the Trump Admin, but will also again shake confidence in the US’ economic institutions, and by extension assets. Both the USD and USTs will now have to price a considerably higher risk premium, and hence are likely to face some headwinds in the short-term, and unimaginably brutal selling pressure if this matter were to progress to criminal charges, or a prosecution. Stocks will also come under pressure in such an instance, though dip buyers are likely to be out in force for the time being, given the still robust nature of both economic and earnings growth.

We must all hope that Trump’s efforts to pressure Powell, or even remove him from office, go absolutely no further, else the US, and potentially global, economy will be heading down a very dark path towards politically-motivated monetary policy, with there possibly being no way back from that.