Fed vs Inflation

Yellen: Chaos Awaits if Trump Succeeds with His Plan

Donald Trump's claim that he has fired Federal Reserve Governor Lisa Cook is illegal, un-American and dangerous, writes former US Treasury Secretary and Federal Reserve Chair Janet Yellen in the FT.

"By targeting Cook, Trump is sending a frightening message to every member of the Federal Reserve Board and to the regional central bank governors."

According to Yellen, the message is clear: Obey me, or be next in line.

Historically, similar moves have been followed by "chaos," writes Yellen, who predicts that the US would lose market confidence. It would be like "throwing away one of the country's greatest economic assets," which, ironically, would lead to higher interest rates, she continues.

Experts: Market too calm ahead of Trump's threat to the Fed

The market is underestimating the risk in Donald Trump's attack on the Federal Reserve's independence. This is what a number of analysts tell Market Watch and the FT.

Blake Gwinn, head of US interest rate strategy at RBC Capital Markets, believes that the development is close to a "complete paradigm shift" in which the president effectively sets monetary policy.

- The markets must start taking the consequences seriously for long-term inflation expectations, future interest rate volatility and foreign demand for US assets, he says.

Other analysts are on the same track. Deutsche Bank, for example, expresses surprise that the fixed income market has been stable this week. Evercore warns of a steeper yield curve and a weaker dollar.