Trump’s clash with the Fed rattles markets. What UAE investors should watch next
Threats to Fed independence could hit the dollar, gold and UAE-linked markets
Dubai: Financial markets are once again being forced to price politics into monetary policy. The US Justice Department’s move to issue subpoenas to the Federal Reserve has reignited fears about political pressure on the central bank, unsettling currencies, bonds and equities at a time when investors were expecting policy stability.
Market strategists say the episode raises uncomfortable questions about the independence of the world’s most influential central bank and what that means for the dollar, global capital flows and investors in dollar-linked economies such as the UAE.
Michael Brown, senior research strategist at Pepperstone, described the subpoenas as “another blatant attempt to erode policy independence.”
“This is nothing to do with building renovations,” Brown said. “This isn’t a construction case, but one that strikes at the very heart of Fed policy independence.”
Brown expects the Federal Reserve to comply with the subpoenas, though the legal process is likely to be prolonged and politically charged. That, he said, complicates President Donald Trump’s plans to appoint a successor to Fed Chair Jerome Powell, especially with bipartisan resistance in the Senate.
From a market perspective, Brown warned that confidence in US institutions is being tested. “Both the USD and USTs will now have to price a considerably higher risk premium,” he said, adding that criminal charges or prosecution would trigger far sharper selling pressure. Equities could also come under strain, though dip buyers may remain active while earnings and growth hold up.
Let's call a spade a spade though. This is nothing to do with building renovations, even if it would be quite ironic for a serial bankrupt property developer to try and pursue that path. Instead, it's Trump acting like little more than a petulant child, throwing a strop yet again because he hasn't got his own way, in this instance lower interest rates. This isn't a construction case, but one that strikes at the very heart of Fed policy independence.
The White House’s threats put the US central bank’s independence and credibility on the line. Concerns of a more politicised Fed could drive inflation expectations higher, tarnish the dollar’s safe‑haven role, and lift long‑term yields.
If the investigation takes a turn for the worse, markets are likely to perceive that as a threat to the Fed’s independence, which could elevate equity risk premiums. UAE investors should see that their portfolios include high-quality, defensive stocks while managing exposure to high-beta stocks driven by momentum or cyclicality.
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