Trump pressures the Federal Reserve to "cut interest rates too slowly" warning from UBS that dismissing Powell could trigger market risks.

President Trump has repeatedly criticized the Federal Reserve for acting too slowly to cut interest rates, sparking concerns in the market about the Fed's independence. Challenging the Fed's autonomy directly could raise the risk premium on US Treasury bonds and weaken market confidence in the US dollar. However, UBS published an article stating that Trump is unlikely to take this risk. The Fed's policy will still be mainly guided by labor market and inflation data, based on which UBS predicts that the rate cut may reach 100 basis points by June 2026. Trump's dissatisfaction with the Fed's pace of rate cuts has exacerbated uncertainty in the market about the Fed's leadership and policy direction. Trump has said that the Fed "now must cut rates drastically" and has jokingly referred to Fed Chairman Jerome "Always Too Late" Powell. Although Trump has said that the likelihood of firing the Fed chairman is extremely low, he also stated that "no possibility is excluded." Earlier, following a weak July non-farm payroll report, Trump promptly fired the Bureau of Labor Statistics director, highlighting his willingness to challenge the independence of traditional institutions. However, UBS believes that the likelihood of directly challenging the Fed's independence is low. Firing the Fed chairman could likely trigger a strong backlash in the financial markets, not only raising doubts about the long-term outlook for US price stability, but also increasing the risk premium on US Treasury bonds. UBS believes that the White House is unlikely to take this risk. Furthermore, dismissing 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 weaken the attractiveness of US Treasury bonds, and still sees high-quality bonds as having investment value. As the Fed's decisions will still be based on economic data rather than political pressure, especially following the weak July non-farm payroll data, UBS predicts a rate cut of 100 basis points by June 2026. This will further reduce the value of cash deposits, increasing the attractiveness of stable returns offered by high-quality bonds, including US Treasury bonds. UBS predicts that US Treasury bonds will maintain their position as a core pillar of the global financial system. Last week, Trump once again criticized Fed Chairman Jerome Powell. He wrote on his personal social media platform: "Fortunately, the US economy is doing great, UBS has overcome the conservative obstacles of Powell and the Fed Board. However, given Powell's terrible and seriously negligent management of the construction of the Fed building, I am considering approving a major lawsuit against him." Although Trump has the authority to initiate the dismissal of Fed Board members for "just cause," there is still room for interpretation of the relevant legal standards and their applicability to the Fed chairman. In history, no Fed Board member has ever been dismissed for "just cause." The independence framework established by the 1951 "Treasury-Fed Accord" has always stood firm in previous political challenges. Firing the Fed chairman could raise questions about the long-term credibility of US monetary policy and the independence of the Fed, which has always been seen as a core pillar of the financial system. UBS believes that high-grade bonds and investment-grade bonds have an attractive risk-return ratio. Even if the independence of the Fed is at risk, this assessment will not change. With the possibility of resuming rate cuts later in the year, UBS believes that high-quality fixed income assets provide an opportunity to lock in a substantial yield.