How Trump’s Move to Fire Cook Could Open Door to ‘Momentous’ Fed Overhaul

Economic

Forex

Summary:

Trump’s move to oust Federal Reserve Governor Lisa Cook on allegations she falsified mortgage documents is a marked escalation in his battle to exert more control over the central bank, and could open the door for even more sweeping board changes.

To Michael Feroli, chief US economist at JPMorgan, a successful sacking would be “momentous” and carry huge implications for the entire Fed make up.

That’s because the slate of terms for the presidents of the 12 regional Fed banks are recertified every five years by the seven-member Board of Governors, in February of years beginning with a 1 or 6 (i.e. 2026).

Doing the math, any replacement for Cook could join Stephen Miran (assuming he’s approved by the Senate when it returns from the summer recess), and Governors Christopher Waller and Michelle Bowman who were appointed by Trump in his first term and dissented to last month’s decision to hold interest rates steady. Those votes were based on differing opinions over the balance of economic risks, but such a quartet would theoretically be able to remove all 12 Fed presidents if they were to vote as a block, “thereby dramatically reshaping the FOMC,” Feroli wrote.

A lot of ifs and buts loom before any such theoretical moves can take place.

For one thing, Cook said Trump has no authority to fire her, and she won’t quit.

Her lawyer, Abbe Lowell, pledged to take “whatever actions are needed to prevent” Trump’s “illegal action.” And Bloomberg Intelligence US policy analyst Nathan R Dean reckons Cook can win.

“Mere allegations of fraud are likely insufficient to meet the ‘for cause’ removal standard unless actual wrongdoing is established, which at minimum likely requires an investigation and possibly a conviction,” Dean wrote.

With lengthy litigation and an uncertain outcome looming, Dean doubts a Cook suit would be resolved by the Board of Governors vote in February.

In a ruling earlier this year, the Supreme Court signaled it would shield the central bank from the type of at-will removals of board members that Trump has undertaken at other independent federal agencies.

There’s also a risk that US markets could buckle if concerns over the Fed’s independence deepen, forcing a TACO-style moderation in Trump’s salvos.

S&P Global Ratings, in a note earlier this month affirming the US at AA+, warned that its sovereign credit rating could “come under pressure if political developments weigh on the strength of American institutions and the effectiveness of long-term policymaking or independence of the Federal Reserve.”

Markets gave a tiny taste of that in the wake of the Cook news. The Treasury curve steepened, with a drop in two-year yields reflecting growing speculation of a Fed rate cut as soon as next month, while 30-year yields climbed on concern looser monetary policy would risk fueling inflation.

“If Trump’s piercing of the Board stokes fears of inflation, bond prices would fall, sending interest rates sharply higher,” said Sarah Binder, political science professor at George Washington University and co-author of The Myth of Independence: How Congress Governs the Federal Reserve. “Central bankers surely prefer to stick to their knitting, but Fed officials can't duck out of the political spotlight.”

Among criticisms the Fed has faced from politicians this year is the operational losses it’s incurring. Those losses are due in large part to the Fed paying out higher interest to banks on the cash they park with it than what it gets from low-yielding bonds that it bought years ago.

So, what if the Fed just stopped paying out interest on the cash that financial institutions place with it? The TD Securities US rates team recently took a look at this issue, which is already in debate in the UK. It “would likely be a low-probability, high-impact event for markets,” they concluded. The Fed’s immediate challenge would be a loss of control of interest rates.

Banks would seek better returns elsewhere, such as in Treasury bills. That would drive short-term rates down, putting in peril the Fed’s benchmark. Policymakers would likely have to sell bonds from the Fed’s portfolio in order to get rates where they want, the TD Securities team, led by Gennadiy Goldberg, wrote. Some of the sales would likely be in mortgage securities, and that would drive up mortgage rates. Banks, facing an earnings hit, may also cut the rates they pay to consumers, the team wrote.

Source: Bloomberg Europe

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

You understand and acknowledge that there is a high degree of risk involved in trading. Following any strategies or investment methods may lead to potential losses. The content on the site is provided by our contributors and analysts for information purposes only. You are solely responsible for determining whether any trading assets, securities, strategy, or any other product is suitable for investing based on your own investment objectives and financial situation.

Add to Favorites

Winkelmann

Economic

Political

Forex

Australia's central bank board judged further policy easing would likely be needed over the coming year when it cut rates this month, and the pace could be gradual or quicker depending on the flow of economic data.Minutes of its August 11-12 policy meeting showed the Reserve Bank of Australia saw a strong case for a quarter-point reduction in the cash rate to 3.6% as data had shown inflation was heading towards the mid-point of its 2-3% target band.

They also discussed the policy strategy over the coming year, adding that preserving full employment and maintaing low and stable inflation was likely to require some further cuts in the cash rate.The board saw arguments for a gradual pace of easing and for a quicker series of moves, with the outcome uncertain as yet."It was important for the pace of decline in the cash rate to be determined by incoming data on a meeting-by-meeting basis," the minutes showed.The central bank has tended to emphasize caution in easing, having only cut rates in February, May and August following the release of quarterly inflation data.

A gradual pace in policy easing may be waranteed as the labour market remained somewhat tight, private demand was showing signs of picking up and there was much uncertainty about where the neutral rate was.A faster pace could be needed if the labour market weakened and there was a risk inflation might undershoot the midpoint of the 2-3% target range. A global slowdown or renewed strains from U.S. tariff policy might also add to the case for quicker easing.Investors are wagering the RBA will skip a move in September and wait until its November meeting to ease to 3.35%. Rates are seen settling around 3.10%, or perhaps as low as 2.85%.

Headline inflation eased to 2.1% in the June quarter, while the trimmed mean measure of core inflation hit a fresh three-year low of 2.7%. The labour market, on the other hand, is easing from full employment levels although at a gradual pace.Employment rebounded in July and the jobless rate edged down from a 3-1/2 year high, calming concerns the labour market was about to fall over.The RBA said board members discussed whether the central bank should increase the pace at which its holdings of government bonds were running down, but they decided there should be no change to its current strategy of letting them mature.

Source: Yahoo Finance

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Gerik

Economic

Washington Grants Relief on Non-Competing Commodities

Indonesia’s top economic policymaker, Airlangga Hartarto, announced that the U.S. has "agreed in principle" to lift the 19% tariff on Indonesian palm oil, cocoa, and rubber products not produced domestically in the United States. Though the exact implementation date is pending final negotiations, the exemption marks a key trade breakthrough under Trump’s aggressive tariff policy that had jolted Southeast Asian exporters since August 7.

The preliminary agreement underscores the pragmatic nature of recent U.S. trade recalibrations: prioritizing exemptions on goods that do not threaten domestic producers, while leveraging strategic negotiations to gain access to foreign markets and secure reciprocal investments.

Indonesia’s Bargain: Billions in Trade and Investment Concessions

In exchange for tariff relief, Indonesia made significant overtures to the United States. Jakarta pledged to invest billions of dollars into U.S. energy and commodity markets, including large purchases of American crude oil, liquefied petroleum gas (LPG), airplanes, and agricultural products. Furthermore, Indonesia committed to a sweeping tariff reduction scheme that would allow almost all U.S. goods to enter its market duty-free.

These pledges are not purely symbolic. They reflect Jakarta’s ambition to secure preferential trade access while attracting U.S. investment into domestic infrastructure and energy sectors. Notably, talks included the possibility of U.S. investment in Indonesia’s fuel storage system via a partnership between U.S. firms, the Indonesian sovereign wealth fund Danantara, and state-owned oil company Pertamina.

Race to the Front: Indonesia Moves Swiftly Amidst Regional Tariff Pressure

Indonesia was one of the first countries to strike a deal with the U.S. in July, ahead of the formal tariff rollout. However, it still found itself hit with the same 19% rate imposed on regional peers like Thailand and Malaysia, and just below Vietnam’s 20%. Tuesday’s exemption marks a significant correction and an early win in the regional contest to negotiate better U.S. trade terms.

With global supply chains still recalibrating from pandemic disruptions and geopolitical shifts, Indonesia’s swift trade diplomacy offers a template for navigating Washington’s transactional trade agenda under Trump. By aligning its strategic sectors and trade preferences with U.S. policy priorities, Jakarta has gained breathing room for its vital export industries.

Strategic Commodities Drive Bilateral Realignment

The prospective removal of tariffs on palm oil, cocoa, and rubber critical commodities for Indonesia’s export earnings and rural employment comes at a politically sensitive time. For President Trump, who is juggling numerous bilateral trade renegotiations, the deal reflects a targeted approach to reduce supply chain friction without compromising domestic industries.

For Indonesia, the exemption signals both an economic reprieve and a political victory, as it demonstrates Jakarta’s growing agility in navigating great power politics while protecting its export competitiveness. If finalized, this agreement could serve as a model for other developing economies seeking tariff relief amid a shifting global trade landscape.

Source: Reuters

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Michelle

Economic

Forex

Global investors were shell-shocked on Tuesday after U.S. President Donald Trump struck another blow at the Federal Reserve's independence, caught between the concerns over politicisation of policy and the payoffs for markets.

Trump's announcement he was firing Fed Governor Lisa Cook surprised markets, even though he had made clear last week that Cook was a target and has for months attacked Chair Jerome Powell as part of his campaign to get the Fed to cut rates.

"It's another crack in the edifice of the United States and its investibility," said Kyle Rodda, a senior financial market analyst at Capital.com in Melbourne.

Rodda said he was concerned about the motives of the Trump administration, that the move was not to preserve Fed integrity but rather to install Trump's own people at the central bank.

"It goes back to trust in institutions," he said.

While Cook's departure is not assured and she has disputed Trump's authority to remove her, that Trump said her firing was "effective immediately" just two weeks before the Fed's policy meeting, is another matter of concern for investors.

Still, market reaction was tame. Short-term Treasury yields fell slightly, while expectations such forced easing of monetary conditions will lead to inflation pushed the yield on the 30-year bond up 4.7 bps to 4.936%.

U.S. S&P 500 stock futures dipped just 0.07% while the dollar's index versus a basket of currencies retreated 0.1%.

"People want to see if it happens, but at the same time, it's very difficult to sell the U.S. because of the credibility issues," said Tohru Sasaki, chief strategist at Tokyo-based Fukuoka Financial Group.

One factor investors have to consider is Trump's trade deals, which require countries across Europe and Japan and South Korea to invest hundreds of billions in the United States, Sasaki said.

"If there is a lot of investment into the United States, eventually the dollar will be supported, U.S. equities will be supported. So you may just lose money making a short position in the dollar or U.S. assets."

EXCEPTIONALISM

Trump's gradual ratcheting up of his campaign to exert more influence over the path of monetary policy has already knocked confidence in U.S. sovereign debt as a safe investment, and in the exceptional advantage the dollar enjoyed as a currency of choice.

That advantage had allowed the U.S. to fund a massive national debt that currently stands at $36 trillion, and owe international investors some $26 trillion at the end of 2024.

Source: Yahoo Finance

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Gerik

Economic

Rising U.S. Yields Spill Over to Japan

The political rift between U.S. President Donald Trump and the Federal Reserve has rippled across global bond markets, with Japanese government bond (JGB) yields climbing sharply in response to soaring U.S. Treasury yields. Following Trump’s announcement to remove Fed Governor Lisa Cook an action whose legality remains disputed investors braced for the prospect of a more politically influenced, dovish Federal Reserve. That speculation led to a steepening of the U.S. yield curve, where long-end yields jumped while short-end rates declined.

Japan’s 30-year JGB yield mirrored the upward trend, hitting its previous all-time high of 3.215%. For Tokyo, this development is more than a passing concern. Japan's public debt now exceeds 250% of GDP, making it exceptionally sensitive to shifts in global interest rates. As Finance Minister Katsunobu Kato warned, the Ministry of Finance is now forced to closely monitor JGB volatility and adjust debt issuance strategy accordingly.

Fed Independence in Question: A Catalyst for Volatility

The spike in yields stems not just from expectations of future inflation, but also from the erosion of investor confidence in the Fed’s independence. Although Lisa Cook has legally contested Trump’s ability to remove her, the attempt alone sends a troubling signal to global markets that the Fed could become more susceptible to political pressure. As Mizuho Securities’ strategist Shoki Omori emphasized, “The Fed doesn't look like an independent organisation anymore.”

Such concerns have major implications for long-end Treasuries. If markets increasingly price in looser U.S. monetary policy and higher inflation, demand for long-duration bonds could wane, triggering a global repricing of sovereign debt starting with the most interconnected economies like Japan.

Japan’s Fiscal Tightrope: No Margin for Error

Japan’s fiscal position complicates the situation further. The Ministry of Finance is preparing to request a record ¥32 trillion (approximately $217 billion) for debt servicing next year. Rising yields threaten to inflate these obligations even more, especially if market participants demand higher risk premiums for holding Japanese long-term debt.

Additionally, political instability in Tokyo is adding to the uncertainty. Prime Minister Shigeru Ishiba’s refusal to resign after his party’s upper house defeat has raised fears of policy gridlock. Any delays in budget negotiations or fiscal discipline could worsen bond market sentiment and accelerate the sell-off in JGBs.

Global Contagion Risk: JGBs Move in Lockstep with Treasuries

With Japan holding over $2 trillion in U.S. assets, the convergence between Treasury and JGB yields is almost automatic. Japanese investors have long pursued higher returns abroad through yen-funded carry trades, and U.S. yields have become an irresistible pull factor. But as long-end Treasury yields rise on inflation fears, JGBs are being dragged along a dynamic that now poses risks to both domestic and global financial stability.

Harry Ishikawa, a former Japanese regulator, noted bluntly that “the Ministry of Finance will try to cap it. They will tweak issuance or whatever to do that,” but options are narrowing as buyers become increasingly scarce.

The episode highlights how deeply intertwined global bond markets are with U.S. political developments. Trump’s challenge to Fed independence has set off a chain reaction from inflation fears in the U.S. to fiscal panic in Japan. Without a credible reaffirmation of the Fed’s autonomy and clearer fiscal direction from Tokyo, the risk of sustained upward pressure on long-term yields both in the U.S. and Japan remains high, potentially destabilizing global capital flows and debt sustainability projections.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

FXOpen

Economic

Forex

Technical Analysis

Powell’s speech on Friday had a distinctly dovish tone. Expectations of an interest rate cut strengthened, which led to a sharp weakening of the dollar — on the EUR/USD chart, a bullish impulse A→B was formed.On Monday, as often happens after an initial emotional reaction to major news, the price corrected as market participants reassessed prospects in light of the Fed Chair’s softened rhetoric.

What is particularly notable is that the correction was most evident on the EUR/USD chart, where the decline B→C almost completely offset Friday’s surge. This could point to underlying weakness in the euro, which seems justified when considering that the euro index EXY (the euro’s performance against a basket of currencies) has risen by roughly 13% since the beginning of the year.

The EUR/USD rate reacted less strongly to the news that President Trump had decided to dismiss Lisa Cook, a member of the Federal Reserve’s Board of Governors. While the media debates whether the President has the authority to remove her, traders may instead assess how EUR/USD could fluctuate following the A→B→C volatility swing.

Technical Analysis of the EUR/USD Chart

Recently, we outlined a descending channel using the sequence of lower highs and lows observed this summer. The upper boundary clearly acted as resistance for EUR/USD’s rise on Friday.

From the bears’ perspective:

→ the price has broken downward through an ascending trajectory (shown in purple), and the lower purple line has already changed its role from support to resistance (as indicated by the arrow);

→ today’s rebound from the 1.1600 support level appears weak, as highlighted by the long upper shadow on the candlestick;

→ if this rebound is merely an interim recovery following the bearish B→C impulse, it fails to reach the 50% Fibonacci retracement level.

In addition, the B peak only slightly exceeded the previous August high (which resembles a bull trap).

Taking all this into account, we could assume that in the near term we may see bears attempt to break the 1.1600 support level and push EUR/USD towards the median line of the primary descending channel.

Source: FXOpen

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Gerik

Economic

Strategic Alliance Faces a Defining Moment

According to the Center for Strategic & International Studies (CSIS), the AUKUS partnership between the United States, United Kingdom, and Australia has reached a pivotal juncture. Launched in 2021 as a response to growing tensions in the Indo-Pacific, particularly with China’s rising assertiveness, AUKUS was hailed as a landmark defense pact. At its core, the agreement promises Australia a new fleet of eight nuclear-powered submarines, bolstered by U.S. and U.K. technology and support.

But a recent Pentagon review, paired with delays and strategic ambiguity from Australia, has prompted questions about the agreement’s viability. CSIS analysts Abraham Denmark and Charles Edel, both former U.S. national security officials, argue that the success of AUKUS is now a “strategic imperative” for maintaining regional stability and deterring Chinese aggression.

Timeline Gaps and Operational Uncertainty

The partnership’s submarine timeline illustrates the complexity of execution: Australia is scheduled to begin receiving Virginia-class submarines from the U.S. in the early 2030s, followed by the joint development of the SSN-AUKUS class with the UK, with deliveries not expected until the 2040s. These extended timeframes raise concerns about AUKUS’s ability to respond to shorter-term regional threats, including those surrounding the Taiwan Strait.

Complicating matters further is Australia’s commitment or lack thereof to the operational use of these submarines. While the U.S. seeks strategic clarity, Canberra has maintained a stance of “strategic ambiguity,” declining to specify how or if the U.S.-supplied submarines would be used in potential flashpoints such as a conflict over Taiwan. CSIS analysts recommend that the U.S. and Australia begin a formal contingency planning process, allowing for better coordinated responses and greater mutual trust.

A Test of Allied Resolve Amid Chinese Competition

For Washington, the stakes are high. A failure of AUKUS would not only undermine trust among Western allies but also erode the U.S. industrial base and its influence in the Indo-Pacific. CSIS emphasizes that success would go beyond deterrence it would strengthen U.S. defense manufacturing, build deeper interoperability among allies, and project a unified front in the face of Chinese military and political expansion.

From the UK’s perspective, AUKUS offers a long-term path to maintaining relevance in Indo-Pacific affairs and reinforcing the transatlantic alliance’s global scope. For Australia, it is a once-in-a-generation investment in defense capability but one that must be matched with operational clarity and regional commitment.

The CSIS report functions as a call to action for AUKUS members. With geopolitical tensions intensifying, particularly around Taiwan and the South China Sea, hesitation or disunity could render the alliance ineffective at a critical moment. As the timeline for submarine delivery stretches into the next two decades, the success of AUKUS will depend not just on technological cooperation, but on coordinated military planning, political will, and a shared understanding of the strategic threats that lie ahead.