Speaking of the Fed, if Lisa Cook is ousted – as our US team expects, despite legal hurdles – it paves the way for another pro-Trump appointee. They would join Stephen Miran (or his replacement), Michelle Bowman, and Christopher Waller, leaving a majority of Fed Governors either allied to Trump or minded to cut rates. Four could become five, if Jerome Powell leaves the board once his term as chair ends.
Four or five votes would still fall short of the seven needed for majority decisions on the FOMC. Governors do approve the 12 regional Fed presidents – five of whom vote on a rotational basis. With all 12 up for reappointment in February 2026, there’s a tail risk of serious shake-ups, were Trump to wield enough influence over the governors for them to reject appointees.
Do the governors really have that much sway? And will Bowman and Waller – respected members of the committee – toe the political line as much as some fear? For all the pressure from the White House, Waller was still pitching for a modest 25bp cut in a speech this week.
It’s a nuanced story, and that probably helps explain the relatively restrained market reaction so far. The US Treasury curve has unsurprisingly steepened though: lower rates today risk inflaming inflation further ahead, which is bad news for bonds.
It may not stop here. Padhraic Garvey sees the US 10-year yield hitting 4.5%. It’s a dollar negative, too, backing our call for 1.20 on EUR/USD by year-end. The battle for Fed independence feels like it’s only just getting started…