Trump’s Fed Clash Sparks Rate Cut Bets

Market reaction

Global markets wobbled on Tuesday after U.S. President Donald Trump signaled he would attempt to dismiss Federal Reserve Governor Lisa Cook, a move that raised alarms over central bank independence. The U.S. dollar weakened against major peers, Treasury yields slipped, and traders increased bets that the Fed will cut interest rates as early as September.

According to CME FedWatch, futures now imply an 82% probability of a September rate cut, up sharply from just 65% last week. The S&P 500 finished slightly lower, while rate-sensitive sectors such as banks and insurers underperformed.

Key drivers

The immediate trigger came when President Trump publicly questioned Lisa Cook’s policy stance and competence, suggesting she should be removed. Fed governors are traditionally insulated from political pressure, serving 14-year terms unless impeached by Congress. The attempt raised the specter of political interference in monetary policy just weeks before the Fed’s next meeting.

Analysts noted that Cook, appointed in 2022, has generally aligned with Chair Jerome Powell in supporting data-driven decisions and caution around premature easing. Markets interpreted Trump’s move as signaling a more aggressive push for lower rates, regardless of inflation progress.

Fact box

• Name: Federal Reserve (Board of Governors)
• Key Role: U.S. central bank, sets monetary policy
• Governor at Issue: Lisa Cook (appointed 2022)
• Standard Term: 14 years, subject to Senate confirmation
• Website: federalreserve.gov

Analyst & industry reactions

“Any perception that the White House can dismiss a Fed governor at will is deeply destabilizing,” said Diane Swonk, chief economist at KPMG US, in a note. “The credibility of monetary policy rests on its independence.”

Market strategists highlighted the risks of higher volatility. “Investors are now betting on policy shifts driven by politics rather than data,” said Karl Schamotta of Corpay. “That makes Treasury markets more fragile, with spillover into currencies and equities.”

Some traders speculated that Powell and other board members may emphasize independence in upcoming speeches to calm markets. The European Central Bank and Bank of England both reiterated the importance of institutional autonomy in press briefings on Tuesday.

What’s next

The Fed’s next policy meeting is scheduled for September 17–18, with inflation and labor market data in focus before then. Any escalation of the confrontation between Trump and the Fed could raise legal and constitutional questions, particularly as no U.S. president has successfully removed a sitting governor.

Investors will watch for official responses from Powell, Cook, and Senate leaders. If markets continue to price in faster easing, the dollar could face more downward pressure, and rate-sensitive equities may stay under strain.

Sources

• bloomberg.com
• theguardian.com

Disclaimer: This article is for informational purposes only and does not constitute financial advice. Investors should conduct their own research before making investment decisions.