Stock markets fell, the dollar weakened and gold prices rose after US President Trump escalated his attack on the Federal Reserve, firing Lisa Cook from her position as a governor on the central bank’s board.
After choppy trading in Asia, European markets opened lower on Tuesday with the EuroStoxx 50 falling 0.9% and the FTSE 100 slipping 0.6% and with Wall Street forecast to retreat when the US market reopens. France’s CAC 40 index tumbled 1.8% as French prime minister called a vote on confidence on his budget cuts that he looked likely to lose, pushing the country’s government bonds higher.
Trump claimed on Monday there was “sufficient reason” to believe Cook had made false statements on mortgage applications and said he had the constitutional power to remove her.
Cook, the first African American woman to serve as one of the Fed’s seven governors, said Trump had no legal “cause” to dismiss her and lacked the authority to do so.
“I will not resign. I will continue to carry out my duties to help the American economy as I have been doing since 2022,” she stated, raising the prospect of a legal battle between the White House and the Fed, which has been independent of the US Treasury since 1951.
Hakeem Jefferies, leader of the Democrats in the House of Representatives, called it a “baseless attack” and “slander of a distinguished public servant”, stating on X that: “Donald Trump is trying to remove her without a shred of credible evidence that she has done anything wrong.”
Justin Wolfers, economics professor at University of Michigan, posted: “No-one knows how this ends. And so the narrative shifts from pointless tariff uncertainty to pointless monetary uncertainty, and none of this helps the American people.”
The attempt to remove Cook, one of a Fed committee of 12 interest rate setters who was appointed by Trump’s predecessor, Democrat Joe Biden, is believed to be unprecedented in the central bank’s 111-year history.
It follows a series of personal attacks by Trump on Fed chair Jerome Powell, whom he has called a “numbskull” and a “stubborn moron” for not cutting interest rates to 1%.
Powell has resisted the pressure, explaining he and fellow rate-setters need to assess the impact of Trump’s tariffs on the US economy before cutting the cost of borrowing. On Friday, however, he raised expectations that the Fed’s fund rate range of 4.25%-4.5% could be lowered next month after telling bankers at the Jackson Hole conference that the inflationary impact of tariffs could be temporary.
Having firmed in response to the speech, US government bonds yesterday slipped at Trump’s move against Cook. The US dollar also weakened slightly against the pound while gold responded to the uncertainty rising 1.1% to $3,376.83 an ounce.
Ian Francis, lead manager of CQS Natural Resources Growth and Income (CYN), said Trump’s attacks on Powell by undermining the Fed and weakening the dollar Trump creates a “positive backdrop” for gold which has rallied 34% from $2,508 an ounce since last August.
“Trump is seeking to replace US Fed chair Jerome Powell. Ultimately, this negatively impacts the Fed’s perceived independence, a crucial prop to the dollar’s status as a global reserve currency,” Francis said in his latest monthly commentary.
“Whilst Trump may succeed in pressuring rates lower, inflation remains stubbornly high, this risk exacerbates stagflation (stagnating growth and high inflation) pressures, which is a positive backdrop to gold.”
Francis, who runs the 8%-yielding, £83m investment trust with Keith Watson and Robert Crayfourd, anticipated generalist investors would rotate back into precious metals on account of the “protective properties against this backdrop and strong sector earnings”.
While applying tariffs on imports into the US was a “politically palatable way of effectively imposing taxes on the US consumers”, Francis said the amount raised would likely fall well short of the current budget deficit.
