Trump risks market revolt if he threatens Federal Reserve independence, Pimco says
Any attempt to curb the Federal Reserve’s independence would be “very bad for markets”, Pimco has warned, hours before Donald Trump is set to visit the central bank’s Washington headquarters. “Markets value central bank independence, at least around the setting of policy rates,” Dan Ivascyn, chief investment officer of the $2.1tn bond-focused fund manager Pimco, said in an interview with the Financial Times on Thursday. “Although there’s always tension between policymakers, any attempt to reduce independence would be very bad for markets.” Trump and his allies are set to take the highly unusual step of visiting the Fed as part of an investigation into a $2.5bn renovation of the central bank’s headquarters. Top administration officials have accused Fed chair Jay Powell of “grossly” mismanaging the project. Budget director Russell Vought and Bill Pulte, head of the Federal Housing Finance Agency — who are among the Trump administration’s most vocal opponents of Powell — are set to join the president on the visit. Presidential delegations to the US central bank, which was granted independence to set interest rates as it sees fit in 1951, are rare. The Supreme Court has signalled that the White House cannot fire Powell or any of the Fed’s other six governors over disputes over monetary policy. The president has lashed out repeatedly at the Fed and Powell, who he has called a “numbskull”, for declining to reduce interest rates this year. Trump on Wednesday insisted the cental bank should slash borrowing costs to about 1 per cent — a level typically associated with economic crises — from the current range of 4.25 to 4.5 per cent. Trump ignited a steep drop in the dollar last week when he asked lawmakers whether he should fire Powell. He later said he did not plan on making such a move, but investors said even asking the question had inflamed concerns over central bank independence. Some Fed insiders and former central bank officials are concerned the attacks are being used by the administration as a pretext to pile pressure on Powell to quit before his term as chair ends in May 2026, or even fire him “for cause” — a term usually interpreted as malfeasance.
The Fed chair is adamant that he will remain in place and believes Trump does not have the legal grounds to dismiss him. “Ideas of Powell needing to step down in order to preserve independence don’t make a lot of sense to us,” Ivascyn said. “We think a good independent Fed chair would finish the term, and then determine what to do next.” “From a bond market perspective, it’s important to continue to see positive signals that he can finish his term,” he added.