Bond giant warns: "Suing Powell" is Trump's own goal and will only push interest rates higher.

Several large bond investment institutions have warned that the Trump administration’s attacks on the Federal Reserve’s independence run counter to its goal of lowering interest rates.

According to Wallstreetcn, last Sunday, the U.S. Department of Justice threatened to sue Federal Reserve Chairman Powell. Gregory Peters, Co-Chief Investment Officer of PGIM Fixed Income, which manages about $900 billion in assets, stated:

The market will be very unsettled by the Federal Reserve because it could create instability.

He compared the government’s pressure to an “own goal”—a soccer player accidentally kicking the ball into his own net. He said:

This move will undoubtedly trigger risk-off sentiment. It again shakes institutional norms and will have medium- and long-term effects.

Although U.S. Treasury yields continued to rise on Monday, they were far below the panic-driven highs of the early session; the 10-year yield rose by just one basis point.

(Intraday movements of major U.S. Treasury yields)

However, investment institutions still warn that if this uncertainty persists, it will drive up long-term interest rate risk premiums and could even undermine the dollar’s status as the world’s primary reserve currency.

Markets Remain Resilient For Now But Risks Persist

Markets reacted relatively restrained on Monday, indicating that investors still have confidence in legal and political procedures to protect Federal Reserve independence.

The 10-year Treasury auction saw strong demand, with the winning yield slightly below the market level at the time of bidding. Bloomberg strategist Brendan Fagan pointed out:

Despite news about credibility issues for the Federal Reserve, the bond market remains within its recent range, indicating buyers may be willing to step in at suitable price levels.

Futures markets show traders still expect only two interest rate cuts this year, each by 25 basis points—consistent with expectations last weekend. This suggests government pressure is unlikely to affect the Federal Reserve’s near-term interest rate decisions.

Pimco Chief Investment Officer Daniel Ivascyn said Monday’s market reaction showed confidence that legal and political processes are sufficient to protect the Federal Reserve from government pressure. However, he stressed risks remain clear:

Markets like certainty, predictability, and key aspects of the Fed’s mission—especially independence in rate policy. Any action that threatens the independence of monetary policy decisions can lead to unexpected consequences. More simply, you might ultimately face higher interest rates.

Threats to Federal Reserve Independence Trigger Market Risks

Large bond investment institutions are unanimous in viewing the Trump administration’s impact on Fed independence as a factor destabilizing markets. Peters stated:

Markets will be very nervous about the Federal Reserve as a source of instability.

He noted that such pressure will prompt traders to keep Treasury yields high, thereby raising the cost of mortgages, corporate loans, and other forms of credit.

George Catrambone, Head of Fixed Income at DWS Americas, said the U.S. government’s actions contradict their goal of lowering long-term yields. He stated:

The U.S. government does not want to push up long-term yields, but questioning the Fed’s independence will precisely lead to this outcome.

Markets are still betting Trump will eventually back down, as traders previously bought on dips during tariff threat episodes—the “TACO trade.”

SEB economist Elisabet Kopelman predicts the public conflict between the Federal Reserve and the White House “will not be welcomed by the market” and will “raise the risk premium for U.S. inflation and credit risk, potentially putting upward pressure on long-term yields.”

Elias Haddad, head of global market strategy at Brown Brothers Harriman, said:

These actions threaten the Federal Reserve’s anti-inflation credibility and could accelerate the decline of the dollar’s role as the main reserve currency.

Analysts believe if investors worry inflation will erode investment value, even if the Fed cuts short-term rates, they will demand higher long-term yields as compensation. This could also prompt overseas investors—key buyers of Treasuries—to exit the U.S. market.

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