Wall Street strategists say investors are becoming more concerned about Federal Reserve independence as President Donald Trump seeks to impose his will on the central bank and pushes for interest-rate cuts.
The gold rally and a rotation to value stocks, as well as the widening spread between yields on five- and 30-year Treasuries, show that traders are betting on a pick up in inflation, according to the team at JPMorgan Chase & Co. Meanwhile, Goldman Sachs Group Inc. said that growing concerns over "US institutional credibility risks" could trigger a spike in gold.
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Taken together, it's evidence of how Trump's choice of close adviser Stephen Miran for the Fed and his campaign to oust Governor Lisa Cook are affecting market pricing and the conversation on Wall Street.
"Markets have become more concerned over Fed independence," JPMorgan strategist Nikolaos Panigirtzoglou wrote in a note to clients.
Trump's criticism of the Fed and its leader, Chair Jerome Powell, has drawn rebukes from some of Wall Street's most influential bosses. JPMorgan's Jamie Dimon and Bank of America Corp.'s Brian Moynihan have both
In financial markets, the fallout from the clash has been relatively muted so far, with stocks continuing to hit record highs. Traders have boosted wagers on a Fed rate cut as Trump publicly campaigns for lower borrowing costs and Powell strikes a more dovish tone.
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Goldman Sachs outlined a range of possible outcomes for gold, with a baseline forecast for a surge to $4,000 an ounce by mid-2026; a so-called tail-risk scenario of $4,500; and an estimate of almost $5,000 if just 1% of the privately-owned US Treasury market were to flow into gold.
"A scenario where Fed independence is damaged would likely lead to higher inflation, lower stock and long-dated bond prices, and an erosion of the dollar's reserve currency status," wrote analysts including Samantha Dart.
While Goldman's report focused on commodities, the JPMorgan team studied moves across various assets for signs of the "Fed independence trade" playing out in markets.
In particular, a rotation to value stocks suggests traders are positioning for faster inflation, they said. In the analysis, they looked at short selling metrics on two equity baskets designed to replicate long and short value trades. An increase in short interest on the short value basket, relative to the long one, since April indicates an investor shift toward value, they wrote.
In commodities, the sharp jump in long gold futures and more modest increase in oil positioning are additional signs that traders expect the US to "run the economy hot," said JPMorgan strategists.
They saw less evidence of the "Fed independence trade" in currency markets. Overall dollar positions have been largely flat since the Miran announcement, they added.
