Trump has already tweeted more about the Fed in August than the whole of July
As seen from the data compiled by Bloomberg, Trump has been more and more vocal about his opinion towards the Fed over the past two months. It may not offer much insight about anything but I reckon this goes to show the amount of political pressure that is being applied to the Fed as they mull over their policy decisions.
It comes as no surprise that former Fed chairs themselves have to come out to defend the need for central bank independence in a time when central bank focus is among the highest in recent years - given global economic developments.
Trump wants the Fed to cut rates by 100 bps and restart QE but given current economic conditions, that is unfathomable. Sure, it's going to weaken the dollar and give them significant ammunition to fight trade (also give stocks a major boost) but what happens after that when the US economy experiences a much heavier downturn?
The Fed will have so little ammunition to fight back that they risk losing credibility and markets will throw a massive tantrum that will come back to bite at the US economy.
All this talk is largely conjecture but given how vocal the administration has been towards the Fed's policies, you have to consider any possibility.
Jackson Hole this week will be a key risk event for markets, even if it doesn't tell us anything new. The worry for markets is that the Fed disappoints expectations for September and that will temper with the risk mood somewhat going into next week.
As it stands, a 25 bps rate cut is fully priced in with odds of a 50 bps rate cut currently at ~12%. Trump will want the Fed to go faster on rate cuts but if the Fed is to be consistent with their data-dependent guidance over the years, it's hard to see them going anywhere close to 50 bps before the end of the year.
