UBS On-Air: Market Moves UBS On-Air: Paul Donovan Daily Audio 'Can the Fed be saved?'
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Jul 24, 2025 The podcast dives into the controversial suggestion from the US Commerce Secretary about cutting interest rates and calling for the Federal Reserve Chair's resignation. It raises questions about the implications of political pressure on the Fed's independence. Listeners also explore uncertainties surrounding trade taxes on EU goods and the shaky state of the US labor market. Comparisons with the European Central Bank’s autonomy highlight a crucial debate on the future of central banking.
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Resistance to Fed's Political Pressure
- US Commerce Secretary Lutnick suggested cutting US interest rates now and urged Fed Chair Powell to resign or be replaced.
- The dollar's reaction indicates investors do not want the Fed's independence compromised by political pressures.
Fed Independence and Political Attacks
- Political attacks on the Fed increase reluctance among FOMC members to vote for rate cuts, even if economically justified.
- The Fed's reputation for independence is crucial for its effectiveness and takes years to rebuild once damaged.
Currency Status Linked to Fed Independence
- The US dollar needs to be better than alternatives, not perfect, to maintain its reserve currency status.
- Perception of central bank independence significantly impacts currency dominance, with the European Central Bank seen as more independent currently.