A tale of Fed's independence and potential trump victory
U.S. indexes rally, Nasdaq up ~1%
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U.S. 10-Year Treasury yield jumps to ~3.95%
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A TALE OF FED'S INDEPENDENCE AND POTENTIAL TRUMP VICTORY
A potential Donald Trump re-election could pose some risks to U.S. Federal Reserve's independence, J.P.Morgan analysts warn adding that 'unconventional ways' could be used to likely control the central bank.
Appointments into the Fed Board, pressure on the governors as well as a replacement of the Fed Chair are some unconventional methods that could be used, says JPM analyst Michael Feroli.
While Feroli expects the post-election relations between the Fed and the White House to remain "business as usual" if Kamala Harris comes to power, the same cannot be said about a potential second term for Trump.
Online prediction market PredictIt showed stronger bets on a likelihood of a Harris win in November with contacts for Harris victory trading at 55 cents with a potential $1 payout versus 49 cents for Trump.
Trump's re-election is likely to return with aggressive use of presidential tariff authority, bringing back trade wars and possible market volatility while Harris might stick with the current Biden agenda on most issues.
The brokerage said, the President's nominations to the Fed's Board who in turn are in-charge of approving the regional bank presidents, could indirectly influence the central bank's decision as five of these presidents serve on the committee at any given time.
The President could also choose to exert pressure on the Fed governors. However, Feroli notes, while Jerome Powell remains the Chair, the central bank would likely remain 'immune' to pressure from the White House.
One of the examples he states include - Powell's rate cuts in 2019 were more of a response to Trump's Trade wars, adding that "there is good reason to believe that Chair Powell was not inappropriately influenced by Trump’s repeated criticism of his performance."
Trump's attempts to replace Powell can't be completely ruled out, the Wall Street brokerage said.
Despite the possibility being the first of its kind, the Fed Chair's replacement could provoke a sharp reaction in markets, possibly raising Treasury borrowing costs and threatening the dollar’s reserve currency status, they added.
Yet JPM sees a silver lining. "The Senate, the Court(Supreme Court), and the financial markets could act as brakes on threats to Fed independence," Feroli said.
(Kanchana Chakravarty)
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FOR FRIDAY'S EARLIER LIVE MARKETS POSTS:
U.S. STOCK FUTURES RALLY, YIELDS JUMP, AFTER HOT PAYROLL DATA - CLICK HERE
ROOM FOR OPTIMISM OVER EU/UK EXPORTERS - BARCLAYS - CLICK HERE
MARKETS "OBSESSING" OVER JOBS DATA - CLICK HERE
FRANCE AND ITALY TARGET COMPANIES TO SHRINK DEFICIT: WHAT IT MEANS - CLICK HERE
STOXX IN POSITIVE TERRITORY AS REAL ESTATE AND OIL JUMP - CLICK HERE
EUROPE MARKETS HEAD FOR MIXED START; MIDDLE EAST IN FOCUS -CLICK HERE
MIDDLE EAST TENSIONS DRIVE OIL PRICES - CLICK HERE
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