Due to US President Donald Trump's decision to remove Federal Reserve System head Lisa Cook from office, panic began in the long-term bond market, causing a wave of sales. Investors also began to fear that an attack on the Fed's independence could undermine confidence in America's financial institutions and accelerate inflation.
This is stated in the Financial Times material, writes UNN.
Details
On Tuesday, sales of long-term government bonds sharply increased in the American market. This happened after Donald Trump fired Lisa Cook, who was the head of the Fed. She was accused of "mortgage fraud," but economists call this step political interference in the work of the Central Bank. The gap between short-term and long-term treasury securities and their yield reached an almost three-year high, which is more than 1.2 percentage points.
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The dollar reacted with a 0.3% drop against major world currencies, and two-year bonds lost up to 3.7% in yield. At the same time, the yield of 30-year papers rose to 4.91%, demonstrating an outflow of investors from long-term assets.
Economists warn that the Fed's independence is at risk.
People pay a high price through higher inflation and rates when politicians undermine the autonomy of the central bank
Concerns were also recorded on Wall Street. Goldman Sachs called the market reaction "a symptom of risk aversion in American assets." Other investors emphasized that any interference in the Fed's work increases the so-called "risk premium" and makes long-term US debt more expensive.
Criticism also comes from politicians. Democratic Senator Elizabeth Warren called Trump's actions an "authoritarian power grab," and lawyers remind that the White House still has to prove the legality of Cook's dismissal in court.
Deutsche Bank analysts warn of a dangerous trend – "fiscal dominance," when central banks are forced to adapt to the government's political needs for debt servicing, rather than to economic realities.
The fact that the market does not show more concern surprises us even more. Investors are too complacent about the risk of losing the Fed's independence
Recall
The price of gold in Asian trading rose to a two-week high. This happened against the backdrop of a falling dollar and a conflict between Donald Trump and the US Federal Reserve System.