UBS has warned that Trump’s renewed calls for lower interest rates risk further eroding confidence in the Federal Reserve’s independence — a dynamic markets are increasingly wary of.
In a note to clients, UBS analysts argued that the looming slowdown in the U.S. economy is being driven more by a surge in uncertainty than by restrictive monetary policy. In brief:
- its not the level of interest rates that’s holding back investment and consumption
- its the rising risk around the economic outlook that is weighing most heavily.
UBS notes that businesses and households typically weigh the cost of borrowing against their confidence in the future. With uncertainty on the rise, even modest borrowing costs may not be enough to spur spending or capital investment.
- markets dislike any hint that the Fed’s independence is under threat
- in the current environment, it’s uncertainty—not interest rates—that’s doing the damage
This article was written by Eamonn Sheridan at www.forexlive.com.
