Trump pressure on Fed Chair Powell

Huge news last week.....Federal Reserve Chair Jerome Powell revealed the U.S. Department of Justice has served subpoenas to the Fed and threatened criminal charges over past congressional testimony about Fed building renovation costs. Powell said this looks like an attempt to pressure the central bank, not a normal legal action, and many lawmakers and central bankers have pushed back to defend the Fed’s independence.

• The controversy is part of a broader clash between President Donald Trump and the Fed over interest rate policy, with Trump repeatedly criticizing Powell for not delivering big rate cuts and describing the Fed’s decisions as unacceptable. Several Republican senators and international central bankers have voiced concern about political interference in monetary policy.

  
  

• Trump has not only publicly criticized the Fed’s current leadership but has also signaled he wants interest rates cut all the way down toward 1 percent, a steep move from current levels, and he may consider replacing Powell with someone more aligned with his rate outlook

  
  

• Chance is low.......but here’s the short-term scenario markets would watch:

  Recession narrative (fast cuts) →U.S. uncertainty → investors move into safer assets → U.S. bond yields fall → Canadian bond yields follow → fixed mortgage rates could drop further, even before the BoC moves. https://www.cbc.ca/news/world/jerome-powell-trump-federal-reserve-investigation-9.7042365