(Bloomberg) — Long-dated US Treasuries fell as President Donald Trump intensified efforts to oust Federal Reserve Governor Lisa Cook, deepening concerns his attacks on the central bank’s independence and lobbying for lower interest rates will fan inflation.
The yield on 30-year bonds rose as much as five basis points to 4.94%. The Bloomberg Dollar Spot Index dipped 0.2%.
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While the moves were relatively small, investors and strategists were speculating in their morning trading notes that price pressures may heat up if Trump succeeds in replacing Cook with a policymaker more inclined to lower borrowing costs. The President has repeatedly complained that Fed Chair Jerome Powell and his colleagues have been too slow to cut rates.
“The President is going to remake the Board Governors of the Federal Reserve over the next year, and he’s doing so in very unconventional ways,” said Jamie Cox, managing partner for Harris Financial Group. That approach has “essentially usurped” the Fed’s forward guidance function for now, telling markets lower rates are coming, he added.
Trump sought to remove Cook following allegations she falsified documents on a mortgage application. Cook said she will not resign and disputed Trump’s authority to fire her.
The push to dismiss Cook “is a good reminder that no institution in Washington can insulate itself from Trump’s bullying,” said Sarah Binder, political science professor at George Washington University. “Nor are claims of ‘independence’ sufficient to protect the Fed from Trump’s ambitions. The Fed needs defenders, especially bond traders.”
What Bloomberg Strategists Say
“The more the Fed cuts rates, the greater the threat that longer-dated yields will stay higher. It’s one thing to loosen policy in the face of well-entrenched disinflation, but quite another when price increases are running above target inflation.”
—Ven Ram, Macro Strategist. Click here to read the full analysis.
Pressure on Cook follows an aggressive campaign by Trump to force Powell — whose term as Chair expires in May — to stand down early, with the search for his replacement already underway. Trump appointed Council of Economic Advisers Chairman Stephen Miran, a long-time supporter, to serve the expiring term of Fed Governor Adriana Kugler, who resigned early this month.