Markets sold off worldwide after President Trump announced plans to fire Fed governor Lisa Cook and threatened steep tariffs on China. Two factors drove the decline: the potential removal of a Fed governor and a threat of 200% tariffs on China tied to rare earth supplies. Investors feared a world where the dollar was no longer a reliable reserve currency. S&P 500 futures initially plunged but recovered before the New York open on hopes that the Fed as an institution would resist political pressure. The selloff extended to bonds and lifted the 2-30 year yield curve to cyclical highs.
Markets sold off worldwide after President Trump announced plans to fire Fed governor Lisa Cook and threatened steep tariffs on China, raising fears about Fed independence and the dollar's role as a reserve currency. S&P futures were down this morning. But some hopes emerged as investors focused on the Fed's institutional strength. There was a global selloff in the markets today and every major index-U.S. futures, Asia and Europe-were down this morning.
Two major factors are driving the negativity: President Trump's announcement last night that he will fire U.S. Federal Reserve governor Lisa Cook, thus calling into question the economic independence of the world's most important central bank; and Trump remarking that he may impose 200% tariffs on China if Beijing restricts the U.S.'s access to supplies of rare earth minerals that are 90% controlled by China.
S&P 500 futures were sharply down this morning but made a recovery before the opening bell in New York. That recovery appears to be based on hopes that even if Trump gets his way in replacing Cook, that the Fed as an institution is strong enough that it won't simply bend to Trump's will with large, sudden cuts to the base interest rate.
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