When the market realizes that Trump wants to control the Federal Reserve, Nomura: The United States will face a “triple slaughter” in stocks, bonds, and currency.

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The independence of the Federal Reserve is currently in jeopardy, and political intervention by Trump may trigger global financial market alarms.

According to Chasewind Trading Desk, Nomura stated in its latest report that the Trump administration is initiating unprecedented political intervention in the Federal Reserve, attempting to control monetary policy decisions through personnel changes. This move may end the Fed's independence enjoyed since 1951 and trigger a triple shock of rising inflation expectations, dollar depreciation, and turmoil in global financial markets.

On August 25th, U.S. President Trump announced via social media the dismissal of Federal Reserve Governor Lisa Cook. This is the first time in the 111-year history of the Fed that a president has tried to fire a governor. Trump explicitly stated the next day that he expects to have a "majority seat" at the Federal Open Market Committee soon to drive rate cuts.

According to analysis by Greg Ip, chief economic commentator at The Wall Street Journal, this could be one of the most pivotal moments in the financial markets in decades. If the White House eventually controls monetary policy, the U.S. may enter an era of higher inflation and greater volatility.

Investment bank Evercore ISI warned clients on Tuesday that the asset market is not properly pricing the risk of the Fed’s independence possibly being broken. Former Fed Vice Chair Lael Brainard also warned that government intervention could lead to higher inflation and long-term interest rates.

Unprecedented Firing of Fed Governor and Openly Expressing Intent to Control Central Bank

According to CCTV News, on August 25 local time, U.S. President Trump posted a letter to Fed Governor Lisa Cook on his social media "Truth Social," announcing her immediate dismissal.

The incident originated when William Pulte, director of the Federal Housing Finance Agency appointed by Trump, accused Cook of making false statements in two mortgage applications. After Cook refused the resignation request, Trump decided to fire her directly. Cook's lawyer said they would file a lawsuit to challenge the dismissal, claiming the president does not have the authority to fire Cook.

On August 26, Trump explicitly stated he hopes to soon hold a majority among the governors with voting rights on the FOMC, saying that would be "great" as it would spur a rebound in the housing market. This statement openly expressed his intention to use personnel appointments to control the Fed, which is supposed to be independent from the government.

If Trump’s economic advisor and Fed governor nominee Stephen Milan is confirmed by the Senate, the number of governors supporting Trump’s preferred loose monetary policy will rise from 2 to 3 of those who previously called for rate cuts at the FOMC meetings, taking up half the seats in Cook’s absence.

It is noteworthy that in September 2024, when serving as an investment fund strategist, Milan stated it was wrong for the Fed to cut rates when potential inflation was 2.5%-3%. Now, although the Fed’s policy rate is one percentage point lower and potential inflation remains at the same level, Milan has joined Trump in criticizing the Fed for being unwilling to cut rates further.

Intervention Expands to Regional Federal Reserve Banks

It is worth mentioning that the Trump administration’s intervention is not limited to the Federal Reserve Board of Governors. In addition to the seven governors, five of the twelve regional Fed bank presidents (including the New York Fed president, a permanent FOMC member) also vote on monetary policy.

Unlike Fed governors, regional Fed bank presidents are not nominated by the White House or confirmed by the Senate. They are usually selected and reappointed by each bank’s nine-member board of directors, divided into three classes: Class A represents private banks in the district, Class B are local business leaders and other public representatives, and Class C is appointed by the Fed Board of Governors. The Board votes every five years to approve the reappointment of regional Fed presidents, with the next vote scheduled for February 2026.

Reportedly, the Trump administration is considering intervening in the reappointment approval process, pressuring regional Fed presidents to agree to loose monetary policy as a condition for reappointment.

Markets Face Triple Risk Shock, Affecting Stability of American Lives

Nomura believes that U.S. government intervention in the Fed may trigger triple market risks. Considering that governments generally seek more stimulative and inflationary monetary policies than central banks, if financial markets factor in the risks of political intervention in central bank policy, medium- and long-term inflation expectations may rise. Higher inflation expectations could also trigger dollar depreciation.

At present, financial markets seem to think that political intervention will not have a major impact on Fed policy. However, Trump’s intention to control the Fed is obvious. If financial markets begin to recognize this, there could be capital flight, causing stocks, bonds, and the dollar to all decline, which would be a major blow to the stability of global financial markets.

In addition, Pablo Hernández de Cos, recently appointed General Manager of the Bank for International Settlements (BIS), also responded to the Trump administration's improper political intervention in the Fed, stating that central bank independence is crucial to controlling inflation and ensuring stability in people's lives.

Nomura stated that the central bank is an independent government agency responsible for implementing monetary policy to promote price stability. History shows that government involvement in monetary policy accelerates inflation and worsens living conditions. The central bank can be seen as an institution established based on hard-won historical experience and wisdom; the Trump administration should fully recognize the importance of this history.

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