On the Fed independence under Trump – Commerzbank

In the past, we have sometimes accused the ECB of being too political. Especially during the eurozone crisis, and goals beyond the legally prescribed focus on monetary policy were shining through. In this sense, too, the Fed could become more like the ECB, or even overtake it by a long way. At least if the ideas of presidential candidate Donald Trump were to become reality, Commerzbank’s Head of FX and Commodity Research Ulrich Leuchtmann notes.

Trump set to be USD-negative

“It seems, Trump advocates a disastrous political influence on the Fed. Because the ability to print money is something very special, experience as a real estate mogul does not help in the job as a central banker. Not a bit. And monetary policy that relies on gut feeling is always and everywhere doomed to failure. I can think of no one less competent to have a say in the formulation of US monetary policy than Donald J. Trump.”

“I believe, there is a residual risk that Trump could fundamentally restructure the institutions of the United States if he takes power. For the US Dollar (USD), the US President having a say in Fed interest rate decisions would be the worst-case scenario. In concrete terms, in such a scenario we are not talking about a few pips of USD weakness (in EUR/USD units), but – at least in the medium term – about tens of big figures."

“Everything inflationary that we are already seeing in the US economy and everything inflationary that a Trump administration would produce on top of that would no longer be USD-positive, but negative. Tariffs, tax cuts, etc. would then be signs of a loss of purchasing power for the USD. And because USD weakness would be inflationary, a spiral of inflation and USD devaluation could easily develop.”