Fed's losing independence

Fed chair’s speech today reflects threatened independence of U.S monetary policies, amid political pressure to reduce interest rates and intimidation by the current administration.

Federal Reserve being an independent government agency free from political control, focuses on its dual mandate of price stability and full employment that drive the Interest rate decision.

The recent cuts have brought down the interest rates from 4.50% to 3.75%, underpinned by downside risk to unemployment, and elevated uncertainty about economic outlook. However, rising inflation and unemployment continues to challenge further rate cuts. 

To this front, recent political effort to influence reduction of interest rates indicate a threat to the independence of world’s largest and most influential monetary institution.

This risks decline of “trust” in system that anchors the U.S. Dollar’s reserve currency status. Hegemonic moves directed towards strengthening US Dollar are causing a riptide effect weakening the faith in U.S. system and its global attractiveness.

Impact on asset classes - would be declining US Dollar index, flight of capital to precious metals like gold, silver and alternate assets. 

For additional context and background, please refer to my detailed note - https://www.risingcurve.info/post/u-s-hegemonic-drive-the-riptide-effect-part-1

By Ushma Zunzavadiya