Bloomberg Survey: "Fed Independence Will Weaken if Trump Wins"

Fed Status May Decline with Trump Re-election
Bond Yields Rise, Stock Market Correction Inevitable
Experts Say "Fed Independence Must Be Guaranteed"

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A survey has revealed that the independence of the Federal Reserve (Fed) could weaken if former President Trump wins re-election in the upcoming November U.S. presidential election, which is expected to be a return match between former and current presidents. Experts analyze that if the trust in the Fed, known as the "world's largest economic overseer," is broken by former President Trump, bond yields could rise and the stock market could face corrections.

On the 2nd (local time), Bloomberg News released the results of a survey conducted from the 27th to the 31st of last month over five days, targeting asset managers, economists, and others regarding the "Donald Trump former president's election victory scenario."

When asked about the most likely action that former President Trump would take toward the Fed if elected, the top choice was "limiting independence" (44.3%). This was followed by "public commentary on Fed policy" (35.4%), "demotion of Fed Chair Jerome Powell" (14.1%), and "no change" (6.2%). Bloomberg News noted “This contrasts with the Biden re-election scenario, where more than half of respondents expect the Fed's high-interest rate policy to remain in place to curb inflation.”

Market participants expect that if former President Trump is re-elected, he will pressure the Fed to lower the benchmark interest rate. In this case, there is an assessment that the Fed could be exposed to the risk of losing investor confidence. The Fed is currently maintaining the benchmark interest rate at its highest level in 22 years (5.25?5.5% annually) to prevent inflation overheating.

Diane Swonk, Chief Economist at KPMG LLP, predicted that the bond market would first experience volatility. In fact, 24% of Bloomberg survey respondents said the U.S. 10-year Treasury yield would immediately rise by 25 basis points (1bp = 0.01%P) or more, and 23% expected a slight increase. This is expected to inevitably lead to a correction in the stock market as well.

Former President Trump has made critical remarks about the Fed over time. Since early this year when he announced his candidacy, he has called Fed Chair Jerome Powell political in several interviews with U.S. media, saying he would "not reappoint him" if elected and criticized "mortgage rates being too high." During his presidency in 2019, amid escalating U.S.-China trade tensions, he pressured the Fed to lower the benchmark interest rate and referred to Chair Powell as an "enemy."

Experts emphasize that regardless of who is elected U.S. president, the Fed's independence must be guaranteed. Subadra Rajappa, Head of U.S. Rates Strategy at Soci?t? G?n?rale in New York, said, “(This) current structure of the Fed is the driving force behind the U.S. economy.” The Fed’s composition of three branches?the Board of Governors, the 12 Federal Reserve Banks, and the Federal Open Market Committee (FOMC)?is designed to prevent influence from political appointees’ “pressure.”

This content was produced with the assistance of AI translation services.