President Donald Trump ‘s attempts to fire Federal Reserve Board Governor Lisa Cook could have a profound impact on the bond market, according to Krishna Guha, vice chairman of Evercore ISI. Trump posted Cook’s termination letter on Truth Social late Monday, alleging Cook made false statements on mortgage applications. Cook said Trump has no authority to fire her and refuses to resign. If she is ultimately removed and Trump’s replacement is confirmed, the president will have a 4-to-3 majority on the Fed Reserve Board. The news already had investors betting that short-term rates would go lower but long-term rates would go higher if the Fed becomes less attentive to inflation and economic data. On Tuesday, the yield curve steepened somewhat , with long-term yields rising and their short-term counterparts falling. Bond yields move inversely to prices. US2Y 5D mountain 2-yr Treasury yield in past five days “We think asset markets are not properly priced for what increasingly seems likely to be a rupture in Fed independence and the policy reaction function in 2026,” Guha wrote in a note Tuesday. While there are different scenarios on what could occur within the Fed, Guha’s baseline case is a “very substantial Trumpification” of the central bank through 2026. That could potentially mean a look-through approach to tariff inflation and potentially more rapid rate cuts, he said. Guha expects the risks to the Fed’s independence to show up in a steeper yield curve, higher inflation compensation and a higher inflation risk premium, as well as a weaker dollar. “In the near term equities might not be too adversely … [affected], given exposure to any short-term boost to nominal GDP from dovish-skewed policy and the nominal earnings hedge against inflation, though vulnerable to de-rating over time as institutional quality erodes and to a potential riot in the bond market at a moment that is very hard to predict,” he warned.
Trump risks a ‘riot in the bond market’ with attempted Cook firing, says Evercore ISI’s Guha
