Official White House Photo by Molly Riley
The Dollar is back on the defensive following his latest comments.
Treasury Secretary Scott Bessent raised the pressure on the Federal Reserve, signalling the need for significant changes.
The latest jabs raise questions about the longer term sanctity of Federal Reserve independence, posing headwinds to the exceptionalism of U.S. assets, including the Dollar.
In an interview, Bessent called for an inquiry into the "entire Federal Reserve institution".
"We should think has the organisation succeeded in its mission? If this was the FAA and we were having this many mistakes, we would go back and look at why has this happened."
He followed up the comments on social media, saying that Federal Reserve autonomy is "threatened by persistent mandate creep into areas beyond its core mission."
The issue of Fed independence is increasingly showing up on investors' risk radars, and is one reason why many of the institutional analysts we follow remain convinced the Dollar will weaken further over the coming months.
Growing concerns could cut short the Dollar's July recovery, meaning a retest of June's multi-month lows could come sooner than anticipated.
"The USD's correlation to most other asset classes has been broken for the past few months. The longer this trade, Fed chair, and geopolitical uncertainty persist, the more likely this ushers in the next leg lower for the USD," says Jayati Bharadwaj, Head of FX Strategy at TD Securities.
Above: The Dollar index is trending lower.
Betting markets currently see a lowish 20% odds that Jerome Powell leaves his post before his term expires next year.
However, the attacks on Powell and the Fed might already be influencing markets, by prompting investors to demand a premium on U.S. assets, while it could also potentially induce the Fed into delivering rate cuts earlier than it might have otherwise.
On July 06, President Donald Trump asked a group of House Republicans if he should fire Federal Reserve Chair Jerome Powell, and people in the room voiced approval, according to a CBS News report.
Several sources told CBS that Trump indicated he will do it.
Trump has publicly pressured Powell to slash interest rates immediately, as this would boost the economy, calling the Fed chair a "stupid guy" and "really bad" for keeping rates near 4.25–4.5%.
On Truth Social, Trump labelled Powell a "total and complete moron" and a "numbskull." "I'd love if he wants to resign," he said in another post.
However, the Supreme Court confirmed that the Fed Chair cannot be removed without "cause," suggesting Trump lacks power to dismiss him.
"Cause" refers to a legally valid and specific reason required to justify removing the Chair of the Federal Reserve before the end of their term.
It looks like the Administration is now looking for cause, citing the matter of the renovations to two Fed buildings in Washington.
The buildings are undergoing a $2.5BN rennovation that Trump and his allies allege has been mishandled.
"The attacks on the Fed are intensifying," says Dr. Win Thin, Global Head of Markets Strategy at Brown Brothers Harriman. "We believe confidence in US policymaking will continue to erode."
It looks increasingly clear Trump thinks the Fed should be an additional arm of the Executive; he expressed regret over appointing Powell during his first term as President, calling him a poor communicator and accusing him of lacking the "guts" to cut rates aggressively.
At the time, Trump blamed the Fed for slowing down economic momentum, especially during 2018–2019, saying the Fed’s policy decisions were politically motivated or misguided.