How Independent is the US Federal Reserve in the Age of Trump?

The US Federal Reserve is under Pressure: Why Gold Is Beating Every Market

Gold has always been seen as a safe haven, but its latest surge has left even seasoned investors asking questions. With prices climbing to US$3,560 and returns topping 42 percent, gold has outpaced nearly every major benchmark this year. The rally is not just about inflation or global uncertainty—it is also about politics. 

Reports of President Trump considering the removal of Jerome Powell and pressuring the Federal Reserve to cut interest rates have sparked fears that the Fed’s independence is slipping. When the credibility of the world’s most important central bank is called into question, investors look for protection. Christine Lagarde, head of the European Central Bank, has even warned that such interference could pose a serious threat to global economic stability.

The real story is how this mix of political risk, debt pressures, and central bank credibility is reshaping investor behavior. Understanding why gold is outperforming can shed light on broader market dynamics and help investors anticipate where capital may flow next. Let’s break down what this means for markets, and more importantly, where the opportunity lies when the US Federal Reserve is under pressure.

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Gold Hits Record Highs as Investors Flee to Safety

The price of gold has reached record highs as demand for precious metals strengthens amid global economic uncertainty. Understanding gold’s supply and demand dynamics is essential, as they reflect the psychology of human behaviour and how investors respond to fear. On Tuesday, the spot gold price climbed to US$3,508 per ounce, extending a rally that has lifted the metal by nearly one third this year. 

Growing political pressure on the US Federal Reserve to cut interest rates has fuelled concerns over economic stability, prompting investors to seek safety in gold. A similar pattern is evident in alternative assets such as Bitcoin, which has also surged to all-time highs as investors look for secure stores of value.

The Hidden Risk if the US Federal Reserve Loses Independence

The key risk for investors if the Federal Reserve were to lose its independence lies in the potential for aggressive rate cuts, such as those proposed by President Trump that would bring rates down to around 1 percent. 

While lower rates may initially boost consumer spending and corporate profitability, they also risk reigniting inflation. High inflation erodes purchasing power, weakens the US dollar, and channels capital into hard assets such as gold and real estate, ultimately undermining long-term economic stability.

Another pressing concern is the government’s debt burden, which already exceeds USD 36 trillion. Artificially low interest rates could encourage even greater borrowing, providing short-term relief but eroding fiscal discipline.

 If creditors begin to doubt the government’s ability to manage its debt, borrowing costs could rise sharply, sparking a potential debt crisis. In this environment, the bond market could sell off, driving long-term yields higher even as the Fed attempts to anchor short-term rates. Such a distortion in the yield curve would signal a profound loss of confidence in US policy. But with the US Federal Reserve under pressure, anything is possible.