Trump pressures the Federal Reserve "rate cuts too slow" UBS warns that removing Powell could trigger market risks

According to the Zhitong Finance APP, U.S. President Donald Trump has repeatedly criticized the Federal Reserve for its slow interest rate cuts, raising concerns about the Fed's independence in the market. A direct challenge to the Fed's autonomy could increase the risk premium on U.S. Treasury bonds and undermine market confidence in the dollar. However, UBS published an article stating that Trump is unlikely to take such risks. The Fed's policies will still be primarily guided by labor market and inflation data, and based on this, UBS expects that by June 2026, the rate cuts may reach 100 basis points.

Trump's dissatisfaction with the Fed's pace of interest rate cuts has intensified uncertainty in the market regarding the leadership and policy direction of the Fed. Trump has stated that the Fed "must now cut rates significantly" and has mockingly referred to the Fed Chairman as "Jerome 'Always Too Late' Powell."

Although Trump claims that the likelihood of firing the Fed Chairman is "extremely low," he also stated that he does not rule out any possibilities. Previously, after a disappointing July non-farm payroll report, Trump immediately fired the head of the Bureau of Labor Statistics, highlighting his willingness to challenge the autonomy of traditional independent institutions. However, UBS stated that the likelihood of directly challenging the Fed's autonomy is low.

If the Fed Chairman were to be fired, it could trigger a strong backlash in the financial markets, raising doubts about the long-term prospects for price stability in the U.S. and increasing the risk premium on U.S. Treasury bonds. UBS believes that the White House would not be willing to take such risks. Moreover, removing Powell before the end of his term in May 2026 could face legal challenges.

Therefore, UBS believes that concerns about the Fed's independence will not diminish the attractiveness of U.S. Treasury bonds and still considers high-quality bonds to have investment value. Since the Fed's decisions are still based on economic data rather than political pressure, especially after the weak July non-farm payroll data, UBS expects interest rates to be cut by 100 basis points by June 2026.

This will further diminish the value of cash deposits, thereby enhancing the appeal of the stable returns offered by high-quality bonds, including U.S. Treasury bonds. UBS expects that U.S. Treasury bonds will maintain their position as a core pillar of the global financial system.

Last week, Trump again criticized Fed Chairman Jerome Powell. He wrote on his personal social media platform: "Fortunately, the U.S. economy is doing incredibly well, and UBS has overcome the conservative obstacles posed by Powell and the Federal Reserve Board. However, given Powell's terrible performance and serious dereliction of duty in managing the construction of the Fed building, I am considering approving a major lawsuit against him."

While Trump has the authority to initiate the removal process for Fed Board members on the grounds of "just cause," there is still room for interpretation regarding the relevant legal standards and their applicability to the Fed Chairman. Historically, no Fed Board member has ever been fired for "just cause." The independence framework established by the 1951 Treasury-Fed Agreement has remained resilient in the face of previous political challenges.

If the Fed Chairman were to be fired, it could raise questions about the long-term credibility of U.S. monetary policy and the independence of the Fed—an independence that has always been regarded as a core pillar of the financial system UBS believes that high-rated bonds and investment-grade bonds offer an attractive risk-return profile. This assessment will not change even if the independence of the Federal Reserve is at risk. With the possibility of restarting interest rate cuts later this year, UBS believes that high-quality fixed-income assets provide an opportunity to lock in substantial yields