(Bloomberg) — The dollar dropped and gold gained after President Donald Trump removed Federal Reserve Governor Lisa Cook, raising concerns about the independence of the central bank.
A gauge of the dollar retreated 0.3% as Cook will be removed from the position effective immediately, according to a letter Trump posted on his Truth Social account. The yen appreciated. Treasuries flipped after initially gaining on the news, sending yields on the benchmark 10-year higher by one basis point to 4.28%. Gold rose 0.5%.
Asian stocks fell along with equity-index futures for US and Europe as Trump also threatened to place export curbs on chips. Contracts for the Nasdaq 100 fell 0.4% while those for the S&P 500 retreated 0.3%.
The announcement comes after the US Department of Justice indicated it planned to investigate Cook, following a criminal referral from Federal Housing Finance Agency Director Bill Pulte alleging that she may have committed mortgage fraud. That investigation marked the latest in a series of moves by the Trump administration both to increase legal scrutiny of Democratic figures and put pressure on the central bank.
“Removing Cook increases concerns over Fed independence, assuming Cook has no legal recourse,” said Rodrigo Catril, a strategist in Sydney at the National Australia Bank. “If Trump succeeds, then this means he could potentially have four board members aligning with his view. Whether these board members respect Fed independence and adhere to the Fed’s dual mandate remains to be seen.”
Cook said Aug. 20, after Pulte initially called on US Attorney General Pam Bondi to investigate, that she had “no intention of being bullied to step down from my position because of some questions raised in a tweet.”
Cook added that she did “intend to take any questions about my financial history seriously as a member of the Federal Reserve and so I am gathering the accurate information to answer any legitimate questions and provide the facts.”
“Markets typically take such headlines as a threat to Fed independence,” said Anna Wu, an investment strategist at Van Eck Associates. “It sparks uncertainty but also reinforces that the Trump playbook is likely to dominate.”
What Bloomberg strategists say:
“Bond traders have been given another reason for pushing the Treasury curve even steeper after President Trump removed Lisa Cook. Investors are betting on two rate cuts by year-end, but that looks set to climb as speculation will increase that at least one meeting will include a 50-bp reduction.”
—Mark Cranfield, MLIV.
Stocks were already under pressure after initial optimism about the Fed lowering interest rates vanished and US stocks retreated Monday. Stocks rallied on Friday after Federal Reserve Chair Jerome Powell opened the door for a possible interest-rate cut.
The sense of euphoria eased as doubts over the pace of those reductions lingered on Wall Street as traders braced for a not-so-friendly price reading later this week.
Policymakers are grappling with inflation that’s still above their 2% goal — and rising — and a labor market that’s showing signs of weakness. That unnerving reality, which pulls policy in opposite directions, is made worse by a high degree of uncertainty about how each of those factors will evolve over the coming months.
The Fed’s preferred gauge of underlying inflation probably ticked higher last month, with the personal consumption expenditures price index excluding food and energy rising 2.9% from a year ago. That would be the fastest annual pace in five months.
Aside from the macro picture, the next big test for the stock market will be a read on what’s been driving gains for the past few years: artificial-intelligence euphoria.
Nvidia – the last of the “Magnificent Seven” to report earnings – is due to unveil its results Wednesday after the close. Traders are hoping it can soothe fears about AI spending and effectively confirm that the stock market’s latest rally isn’t just a technology bubble.
Stocks
S&P 500 futures fell 0.2% as of 9:59 a.m. Tokyo time Japan’s Topix fell 1.1% Australia’s S&P/ASX 200 fell 0.4% Euro Stoxx 50 futures fell 0.8% Currencies
The Bloomberg Dollar Spot Index fell 0.2% The euro rose 0.2% to $1.1647 The Japanese yen rose 0.5% to 147.11 per dollar The offshore yuan rose 0.1% to 7.1505 per dollar Cryptocurrencies
Bitcoin fell 0.3% to $109,199.7 Ether fell 0.3% to $4,339.02 Bonds
The yield on 10-year Treasuries advanced two basis points to 4.29% Japan’s 10-year yield was unchanged at 1.615% Australia’s 10-year yield advanced two basis points to 4.30% Commodities
West Texas Intermediate crude fell 0.6% to $64.42 a barrel Spot gold rose 0.5% to $3,383.70 an ounce This story was produced with the assistance of Bloomberg Automation.
–With assistance from Rthvika Suvarna.
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