Treasury Volatility and Gold Surge as Political Pressure Hits Fed

Global financial markets turned cautious after the U.S. President Trump intensified his political challenge to the Federal Reserve, raising fresh concerns about the central bank’s independence just as investors brace for the next policy shift.

Fed Independency in Doubt

Trump’s recent decision to remove Fed Governor Lisa Cook has rattled investors, with markets interpreting the move as a sign of possible broader interference in monetary policy. The action underscores his long-standing criticism of the Fed, particularly its cautious approach to rate cuts.

The development has reignited debate over the Federal Reserve’s independence, a principle long viewed as a cornerstone of financial stability. Investors now worry that political influence could compromise the Fed’s credibility and its ability to make policy decisions based on economic fundamentals rather than political priorities.

For markets, the risk is that the Fed—traditionally seen as the ultimate safeguard of the U.S. financial system—may come under increasing political pressure, adding a new layer of uncertainty to an already fragile outlook.

Market Reaction: Yields Divergence, Gold Gained

The immediate market reaction reflected a split in investor sentiment. Short-term U.S. Treasury yields fell as traders bet that Trump’s influence could accelerate near-term rate reductions.

However, long-term yields moved higher on fears that the Fed’s credibility could weaken, adding uncertainty to the inflation outlook. This divergence fuelled volatility across the bond market.

US20Y (Blue) vs US10Y (Red) Yields | Chart Source: TVC

“Markets are now pricing not only inflation and growth risks, but also political risk premium into the U.S. bond market”, one of Ultima Market Analyst noted. “This is a dangerous mix for both the dollar and Treasuries.”

Meanwhile, gold prices advanced to a two-week high on Tuesday, highlighting growing risk aversion. The safe-haven metal benefited from investor unease over the Fed’s policy path and rising fears that political pressure could destabilize U.S. financial institutions.

XAU/USD, 4-H Chart Analysis | Source: Ultima Market MT5

From a technical perspective, gold could extend its rally toward the $3,400 level if risk aversion continues to build and investor demand for safe-haven assets strengthens.

What Markets Watching Next?

Looking ahead, investors will closely monitor whether Trump seeks further changes to the Fed’s leadership. Any additional moves could deepen concerns over political interference and place renewed pressure on the U.S. dollar.

At the same time, markets will scrutinize upcoming remarks from Fed Chair Jerome Powell and other governors, viewing them as a crucial test of the central bank’s credibility.

Clear communication from the Fed will be key to calming investors and reinforcing its independence at a time when confidence is increasingly fragile.

Disclaimer

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