Name: Macro Matters: 'Bond investors could take fright' if Fed cuts too quickly | REUTERS
Uploaded: 2026-01-15T16:55:05.000Z
Duration: 4 min 50 s
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Adverbs of manner

The Fed's independence is increasingly in question.

So what does that mean for the wider economy?

This is macro matters and we're talking about the independence of the Federal Reserve.

President Trump's conflict with the central bank ramped up a gear this week after the Department of Justice opened a federal investigation into Chair Jerome Powell over the renovation of the Fed building.

And Chair Powell released a video statement saying the investigation was really about his lack of willingness to cut rates as quickly as the President wants.

James Knightley is ING's chief international economist.

James, we expect President Trump to choose a new Fed chair very soon.

Will the market now see that person's credibility as being in question, whoever they are?

Well, I think there is certainly that question hanging over the market.

There is a sense that Donald Trump's pick may well be more inclined to cut rates more quickly and that actually could be detrimental for the US Economy.

Because if there is that question of credibility, the Fed's inflation fighting stance, if that is seen as being weakened, that could actually lead to bond investors taking fright and could actually lead to higher longer term borrowing costs, which are actually far more critical for the US Economy.

They drive what's happening to corporate borrowing costs.

They drive what's happening to mortgage rates.

So this could actually be working somewhat counter to watch what the President actually wants.

Is it possible Powell could choose to stay on the board?

It is possible because while his role as Chairman of the Fed is, is going to be ending in May and a new replacement will be coming through, his term as a Board of Governor member actually lasts several more years.

So he could linger around and that could again just cause Donald Trump a few headaches in terms of his efforts to, to drive interest rates significantly lower than they are today.

If the new chair wants to carry out the kind of aggressive cutting that the President wants to see, he does, of course, need to convince the rest of the board, who may be concerned, as you said, that that could lead to higher inflation, higher longer term rates.

So what are the odds of these cuts actually happening, do you think?

We've got to remember it is one member, one vote, and

there's a whole range of people on that committee.

So putting in just one new official is not going to change the debate or change the outcome significantly.

That person has to convince a lot of very independently minded officials that what the President says and what the new person, the new chair thinks is right, that's what should happen.

So I think there is this sense that, yep, we'll get a change, but

does this mean that we're going to get a radically different Fed, and

Is there evidence, James, that nerves around this are leading investors to move out of US Assets and the dollar?

This is a general sense that this is a risk, but it's not a central case as such.

And as we come back to the point that it is just one member of a broad committee.

So is this going to lead to a radical change?

It's going to be down to the data and it's going to be the data that continues to drive decision making from the Fed.

We believe next week the Supreme Court hears oral arguments over whether the president can fire Governor Lisa Cook from the Fed.

How important is that ruling for the markets and economic credibility?

Well, again, it just highlights this, this, this interference, if you like, on what is an independent central bank and this, this effort to try and change the narrative within the Fed.

But again, this is just one extra member.

There's still a broad base feeling within the central bank that actually, you know, inflation is still above target, the economy is still in reasonably good shape, unemployment is low in equity markets at all time highs.

There's not a great deal to justify driving interest rate costs down to 2% as the Fed, as the, as the chair, sorry, as the president even has demanded.

So I think we still in an environment where the market is really sanguine and just looking for those two rate cuts this year, nothing more.

Briefly, on another topic, James, we're also expecting the Supreme Court to rule on President Trump's stake tariffs.

They could conclude that those are illegal.

So there's this general sense that about $130 billion of these tariffs could be or could be end up having to be repaid.

But again, I'm a little bit cautious on that because, you know, with the president's ire, you don't want to be a company, you know, being in the firing line of the presidents on that.

And I think the hoops that you'll have to go through to reclaim the tariffs are going to be quite onerous.

So it may not be that we see that much of the tariffs reclaimed.

Moreover, as the president has repeatedly stated this week, tariffs are his favorite word.

Tariffs are here to stay and he will find different ways of applying them.

And we are expecting that to come through.

So even if they are knocked back this time, it is not the end of tariffs.

And a key plank of the president's strategy, that was James Knightley of ING.

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