Trump vs. the Fed: a war without winners

#EURAUD

Key zone: 1.7900 - 1.8000

Buy: 1.8020 (on a strong breakdown of 1.80); target 1.8150-1.8220; StopLoss 1.7950

Sell: 1.7850 (on a strong negative foundation) ; target 1.7700; StopLoss 1.7920

At the latest Jackson Hole summit, the main topic was not economic forecasts, but the possible consequences of an open conflict between the US president and the monetary regulator.

Trump demands that the Fed immediately cut interest rates; in his view, cheap credit will give the US economy a “magnificent, fantastic” boost. The only question is the direction of that boost — up or down.

The Fed under Powell logically fears that such a decision, inappropriate in the current economic situation, would at minimum lead to rising consumer prices — a new inflationary spiral. And the financial community, together with the banks, showed rare solidarity with the Fed chair.

The methods Trump usually employs to achieve his goals are not worth discussing — Donnie disregards not only ethics but also legal norms.

The Fed truly faces a dilemma.

On one hand, there are signs of economic slowdown — for example, the US housing market is “cooling” due to high mortgage rates. At the same time, the tech sector, especially AI-related, is flooded with investments based on inflated profit expectations, and this financial “bubble” could burst at any moment.

If the Fed:

• Cuts rates to help the housing market — the tech sector will “overheat” completely and trigger inflation growth.
• Keeps rates high to restrain inflation — this will crush credit-sensitive sectors of the economy.

The central bank can keep rates low only if everyone — ordinary citizens, companies, and politicians — believes inflation is under control. When the president constantly attacks the regulator’s independence, that confidence dies quickly.

Consumers and businesses already fear the Fed will yield to political pressure and “print” too much “empty” money. By trying to force the Fed to cut rates, Trump creates conditions under which those rates would be dangerous.

The main risk of Trump’s political aggression lies in the enormous US national debt.

The larger the debt, the stronger the temptation for any politician to somehow “reform” the central bank to make servicing that debt cheaper. But at whose expense will those savings come? Correct — at the expense of the consumer. And if the sitting president doesn’t understand that, the market will explain it to him clearly.

The dollar is already consistently sinking into panic and uncertainty. And yet the Fed is supposed to insure the US Treasury market against dollar depreciation — but those guarantees are no longer trusted.

For now, we recommend trying trades in assets less dependent on both the dollar and Trump’s fantasies — for example, popular cross-pairs.

So we act wisely and avoid unnecessary risks.

Profits to y’all!