Trump vs. the Fed: no winners ahead

#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 Jackson Hole summit, the focus was not on economic forecasts but on the consequences of conflict between the US president and the Federal Reserve.

Trump insists on an immediate rate cut, believing that only cheap credit will give the economy a “fantastic boost.” But the key question is the direction of that boost — upward or downward.

The Fed, led by Jerome Powell, quite logically fears that such a decision in the current situation would trigger an “impulse” — an uncontrollable rise in inflation. The financial community and banks this time acted as one, supporting the regulator’s cautious stance.

We will not discuss the methods Trump usually employs to achieve his goals — Donnie ignores not only moral and ethical norms but even the minimum legal ones.

But the Fed truly faces a difficult choice.

• Cutting rates will support the housing market but lead to overheating in the technology sector, where investments in AI are already rising with excessive profit expectations. This financial “bubble” could burst at any moment.
• Keeping rates high will help contain inflation but will severely hit credit-sensitive sectors of the economy — industry, construction, agriculture.

Low rates can be sustained only if there is trust in the Fed’s independence and control over inflation. The president’s constant attacks undermine this trust and create the risk of monetary policy instability.

Businesses and consumers already fear that the Fed may yield to political pressure and flood the economy with excess liquidity. Thus, Trump’s pressure on the Fed chair and monetary policy as a whole creates conditions under which rate cuts become dangerous.

In fact, the main risk of political pressure lies in the enormous US national debt. The higher it grows, the stronger the temptation to use the central bank to cheapen debt servicing — by any means, even dubious ones. But such savings will be at the expense of the consumer. And if the sitting president does not understand this, the market will explain it to him in a very harsh way.

The dollar has shown signs of panic and instability for six months already. At the same time, the Fed, which should serve as the most reliable guarantor of confidence in the Treasuries market, proves ineffective because of conflict with the US administration and with Trump personally.

Under current conditions, we recommend trading assets less dependent on both the dollar and Trump’s political aggression. For example, popular cross-currency pairs.

So we act wisely and avoid unnecessary risks.

Profits to y’all!