Global markets were jolted on Tuesday as Trump moves to remove Federal Reserve Governor Lisa Cook from office. The move sparked immediate financial ripples, sending gold prices to a two-week high and weighing heavily on the dollar. Spot gold rose to $3,371.28 per ounce, its strongest level since mid-August, as investors flocked to safe-haven assets.
The U.S. dollar index fell by nearly a third of a percent, making the greenback cheaper for overseas buyers and intensifying demand for precious metals. Short-term Treasury yields declined as traders bet on increased chances of interest rate cuts, while longer-dated yields saw modest upward pressure, reflecting a mix of uncertainty and hedging. Meanwhile, currencies like the yen and Swiss franc gained ground, reinforcing investor appetite for stability. Stock futures retreated, signaling heightened caution as markets assessed the implications of recent Trump moves and his latest confrontation with the Federal Reserve.
Political Shockwaves and Central Bank Autonomy
Trump moves to remove Lisa Cook, the first African-American woman to serve on the Fed board, has ignited a political storm. The president cited alleged mortgage-related concerns, though Cook has strongly denied any wrongdoing and insists the president lacks the authority to remove her. Through her legal team, she has signaled defiance, refusing to step down and preparing to challenge the dismissal in court.
The firing adds to growing tensions between the White House and the central bank. Trump has repeatedly criticized the Fed’s cautious approach to rate cuts, and Cook’s ousting is widely viewed as part of a broader effort to install officials more aligned with his economic agenda. Critics argue the move undermines the independence of the central bank, which is traditionally insulated from political influence to preserve its credibility. Economists and policy observers warn that blurring this boundary could erode investor confidence in the Fed’s ability to manage inflation and employment objectives without interference.
Risks to Institutional Credibility and Economic Outlook
The clash raises serious questions about the stability of U.S. financial institutions. By attempting to remove a sitting Fed governor, the administration has challenged long-standing norms designed to protect the central bank from political manipulation. Analysts caution that weakening the Fed’s independence could damage the dollar’s standing as a global reserve currency and increase borrowing costs for the United States over time.
Legal battles are expected to follow, with constitutional scholars predicting the issue could ultimately reach the Supreme Court. At the heart of the debate lies whether a president has the power to remove a Federal Reserve governor without clear misconduct or “for cause” justification. Prolonged uncertainty could weigh further on markets already grappling with inflation concerns and fragile global growth.
Investors now await fresh signals from upcoming economic data, including the Personal Consumption Expenditures Index, which could provide clarity on inflation trends. Yet with political turmoil surrounding the Fed intensifyingfollowing recent Trump moves, markets are bracing for heightened volatility in the weeks ahead.
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Sources:
https://www.cnbc.com/2025/08/26/dollar-drops-after-trump-fires-feds-cook.html
https://www.bloomberg.com/news/articles/2025-08-26/dollar-falls-with-treasuries-as-trump-seeks-to-oust-fed-s-cook
