'A person's biggest enemy is themselves.' This saying could not be more fitting when applied to the relationship between Trump and the Federal Reserve. When the market focus is on whether the Federal Reserve will cut rates, Trump's repeated 'bombardments' not only failed to promote an easing policy but instead made the path to rate cuts even more difficult.
In recent weeks, Trump's attacks on Federal Reserve Chairman Powell have escalated. From public 'mockery' and 'abuse' to 'full fire' on social media, Trump has almost spared no effort in pressuring the Federal Reserve. However, this high-profile intervention has made it even more difficult for Powell and his colleagues to take action on rate cuts in the near future.
Any interest rate cut announced at this moment will be interpreted by the market as a 'yielding to pressure from the White House', thereby dealing a fatal blow to the credibility of the Federal Reserve. For the bond market, the independence of the Federal Reserve is the cornerstone that supports global demand for U.S. Treasury bonds. Once this 'cornerstone' shows signs of cracking, the consequences are unimaginable.
A few weeks ago, a rumor about Trump 'possibly trying to fire Powell' was enough to cause a sudden plummet in the bond market. Now, financial markets generally expect that the Federal Reserve will not take any action this week and is likely to continue waiting next month, with a slight rate cut of 25 basis points only possible in July.
In other words, the more 'talkative' Trump is, the less likely Powell is to cut rates. To maintain the independence of the Federal Reserve, Powell must prove to the market that even in the face of open attacks from the President, he will not waver from policy principles.
Economic data follows the script, so why is a rate cut still unlikely?
Ironically, some economic indicators have already begun to develop in the 'hopeful direction' for Trump. The five-year breakeven inflation rate in the U.S. bond market—an indicator reflecting average inflation expectations for the next five years—recently fell from above 2.6% in February to 2.33%. This means that market concerns about future inflation are easing.
But this is not due to Trump's policies; rather, it is his announcement of a new round of massive tariff policies in early April that directly heightened economic uncertainty. The Atlanta Fed significantly downgraded its GDP growth forecast for the second quarter from 2.4% to 1.1% within days, reflecting a cooling economic outlook. ISM data shows that U.S. manufacturing contracted for the second consecutive month in April, and although the service sector remains resilient, there are clear signs of a slowdown in overall economic momentum.
Logically speaking, economic slowdown + declining inflation expectations should provide a 'reasonable justification' for a rate cut. However, Trump's continued pressure on the Federal Reserve has sharply increased the political risks associated with cutting rates.
If Powell were to take easing measures at this time, he would not only face external doubts about being 'bound by the White House', but it would also trigger a trust crisis among overseas investors regarding U.S. Treasury bonds. For a country that relies on issuing Treasury bonds to maintain fiscal operations, this cost is undoubtedly too high.
Currently, **the 10-year U.S. Treasury yield hovers around 4.33%, driving the 30-year fixed mortgage rate up to 6.76%, higher than the same period last year.** This means that the real estate market is still struggling in the 'winter' of high interest rates. JPMorgan analysts point out that unless mortgage rates fall below 5%, real estate transaction activity is unlikely to recover significantly.
To bring mortgage rates down to 5%, the 10-year U.S. Treasury yield must fall to around 2.6%. The only 'key' to achieving this goal is to restore global investors' confidence in the independence of the Federal Reserve.
'Shutting up' may be Trump's biggest 'assist'.
Trump certainly knows that high interest rates hurt real estate and suppress consumption, which is detrimental to his election prospects. Unfortunately, the more he tries to solve the problem by pressuring the Federal Reserve, the more the Federal Reserve finds it difficult to 'go with the flow'.
If Trump really wants to 'rescue' the economy and the real estate market, perhaps the best approach is: stop talking about the Federal Reserve.
Because only in an environment where political noise is minimized and market trust is restored can Powell possibly push for a policy shift without compromising independence. Otherwise, every attack will only postpone the timing of a rate cut.
This is not just a matter of monetary policy; it is also a profound test of the credibility of the Federal Reserve and the stability of the U.S. financial system. A Federal Reserve that loses its independence will find it difficult to continue playing the role of the global monetary anchor, and the international status of the dollar and U.S. Treasury bonds may also be shaken as a result.
Investor's cold reflection: Market opportunities in the policy game
In the face of the game between Trump's 'loquacity' and the Federal Reserve's 'pressure', both the crypto market and traditional financial markets need to reassess risks and opportunities. In the short term, the high fluctuations in U.S. Treasury yields will continue to constrain the risk appetite of the capital markets, which also means that 'alternative assets' such as Bitcoin and gold may still benefit from safe-haven demand.
In this complex situation, it is particularly important to timely track policy trends, grasp key individuals' speech nodes, and analyze changes in market sentiment. With the multidimensional data tracking and AI insights of Mlion.ai, investors can capture trading opportunities hidden behind policy games more quickly and accurately, thereby gaining an advantage in an uncertain market.
Disclaimer: The above content is for information sharing only and does not constitute any investment advice! Investment involves risks; proceed with caution.
