USD flows: Markets calm despite risks to Fed independence
The market reaction to the Dep’t of Justice investigation of Fed Chairman Powell has been muted, with Trump still facing several obstacles to gaining control of the Fed.
Republican Senator Thom Tillis of North Carolina, a member of the Senate Banking Committee, has stated he will oppose any Fed nomination until the issue is resolved, and with the Republicans having a 13-11 majority on the Committee Tillis has the ability to prevent a nomination going forward. Thillis is something of a lame duck not seeing reelection this year. Another Republican member of the Senate banking Committee, North Dakota’s Kevin Kramer, has stated that while he sees Powell as bad leader of the Fed, he does believe he is a criminal. The Republicans have a 53-47 majority in the Senate and another Republican Senator, Alaska’s Lisa Murkowski, a frequent critic of Trump, has also strongly criticized the investigation into Powell. Powell’s term as Fed Chairman ends in May but his term as a Fed Governor extends into 2028. Before the latest developments Powell was generally expected to step down from the Fed in May, but now betting markets see it as a close call if he will do so. If Powell remains as a Fed Governor after the next Chair is appointed Powell may have more influence on the FOMC than the incoming Chair.