When the market realizes that Trump wants to control the Federal Reserve, Nomura: the U.S. will face a "triple whammy" of stocks, bonds, and currency

Currently, the independence of the Federal Reserve is in jeopardy, and Trump's political interference may trigger alarms in global financial markets.

According to news from the Chase Wind Trading Desk, Nomura stated in its latest report that the Trump administration is launching unprecedented political interference in the Federal Reserve, attempting to control monetary policy decisions through personnel changes. This move could end the independence that the Federal Reserve has enjoyed since 1951 and trigger a triple shock of rising inflation expectations, depreciation of the dollar, and turmoil in global financial markets.

On August 25, U.S. President Trump announced via social media the dismissal of Federal Reserve Governor Lisa Cook, marking the first time in the 111-year history of the Federal Reserve that a president has attempted to dismiss a governor. The next day, Trump explicitly stated that he expects to soon hold a "majority seat" on the Federal Open Market Committee to push for interest rate cuts.

According to an analysis by Greg Ip, chief economic commentator for The Wall Street Journal, this could become one of the most critical junctures for financial markets in decades. If the White House ultimately gains control over monetary policy, the U.S. may enter an era of higher inflation and greater volatility.

Investment bank Evercore ISI warned clients on Tuesday that asset markets are not appropriately pricing the risk of a potential rupture in the Federal Reserve's independence. Former Federal Reserve Vice Chair Lael Brainard also warned that government intervention could lead to higher inflation and long-term interest rates.

Unprecedented Dismissal of Federal Reserve Governor and Open Expression of Intent to Control the Central Bank

According to CCTV News, on August 25 local time, U.S. President Trump publicly released a letter to Federal Reserve Governor Lisa Cook on his social media platform "Truth Social," announcing her immediate dismissal.

The incident stemmed from accusations made by William Pulte, the director of the Federal Housing Finance Agency appointed by Trump, claiming that Cook made false statements in two mortgage applications. After Cook refused to resign, Trump decided to dismiss her directly. Cook's lawyer stated that they would file a lawsuit to challenge the dismissal, claiming that the president has no authority to dismiss Cook.

On August 26, Trump explicitly stated that he expects to soon hold a majority among the governors with voting rights on the Federal Open Market Committee, which would be "great," as it would drive a rebound in the real estate market. This statement openly expressed his intention to use personnel appointments to control the Federal Reserve, which should be independent of the government.

If Trump's economic advisor and nominee for Federal Reserve governor, Stephen Milan, is confirmed by the Senate, the number of governors supporting Trump's preferred monetary easing policy will increase from 2 to 3, occupying half of the seats in the absence of Cook, following the previous FOMC meeting's call for interest rate cuts.

It is noteworthy that Milan, while serving as an investment fund strategist in September 2024, stated that it would be a mistake for the Federal Reserve to cut interest rates when the potential inflation rate is 2.5%-3%. Now, despite the Federal Reserve's policy rate being 1 percentage point lower than it was then and the potential inflation rate remaining at the same level, Milan has joined Trump in criticizing the Federal Reserve for its unwillingness to cut rates further

Intervention Extends to Regional Federal Reserve Banks

It is worth mentioning that the scope of intervention by the Trump administration is not limited to the Federal Reserve Board. In addition to the seven governors, five presidents of the 12 regional Federal Reserve Banks (including the president of the New York Fed, a permanent member of the FOMC) also participate in monetary policy voting.

Unlike Federal Reserve governors, the appointment of regional Federal Reserve Bank presidents does not require nomination by the White House or approval by the Senate. Nominations and reappointments are typically decided by the nine-member board of directors of each bank, which is divided into three classes: Class A represents private banks in the district, Class B represents public representatives such as local business executives, and Class C is appointed by the Federal Reserve Board. The Board votes every five years to approve the reappointment of regional Federal Reserve Bank presidents, with the next reappointment vote scheduled for February 2026.

It is reported that the Trump administration is considering intervening in the reappointment approval process, pressuring regional Federal Reserve Bank presidents to agree to monetary easing policies as a condition for reappointment.

The Market Faces Triple Risk Shock, Affecting the Stability of American Lives

Nomura believes that government intervention in the Federal Reserve could trigger triple market risks. Considering that the government often seeks more stimulative and inflationary monetary policies than central banks, if financial markets take into account the risk of political interference in central bank policies, medium- to long-term inflation expectations may rise. Higher inflation expectations could also lead to a depreciation of the dollar.

Currently, financial markets seem to believe that political intervention will not have a significant impact on Federal Reserve policy. However, the Trump administration's intention to control the Federal Reserve is evident. If financial markets begin to recognize this, we may see capital flight driving down stocks, bonds, and the dollar across the board, which would significantly impact the stability of global financial markets.

In addition, Pablo Hernández de Cos, who recently took office as the General Manager of the Bank for International Settlements (BIS), also responded to the Trump administration's improper political interference in the Federal Reserve, stating that the independence of central banks is crucial for controlling inflation and ensuring the stability of people's lives.

Nomura stated that central banks are independent government institutions responsible for implementing monetary policies that promote price stability. History shows that government involvement in monetary policy accelerates inflation and worsens people's lives. Central banks can be seen as institutions built on hard-earned historical wisdom; the Trump administration should fully recognize the importance of this history