Trump’s Efforts to Oust Fed Governor Spur Teeter-Totter Treasury Market

U.S. bond investors expect President Donald Trump’s latest attempt to exert control over the Federal Reserve to push down the value of long-dated U.S. debt amid concerns that an overly dovish central bank could lose its grip on inflation, Davide Barbuscia and Yoruk Bahceli reported for Reuters.

Trump has been pressuring the Fed to lower interest rates since returning to the White House this year.

On Monday, Trump escalated his battle against the Fed to an unprecedented level by moving to fire Governor Lisa Cook over questions related to mortgages she took out before joining the central bank.

The effort is part of Trump’s ongoing pressure campaign to push the Fed toward lowering interest rates since returning to the White House this year.

“Implications if this were to go through would be a relatively more dovish leaning board of governors and FOMC, which potentially could mean looser-than-necessary monetary policy resulting in lower short-end yields but higher longer-term yields,” said John Madziyire, head of U.S. Treasuries and Treasury Inflation-Protected Securities at Vanguard.

“This will result in higher term premiums on increased inflation expectations and higher uncertainty,” he added, referring to the extra return investors demand for holding long-dated U.S. debt over shorter-term securities.