Economists from Duke University and London Business School recently published research into a once-unthinkable — but now timely — question: how much market impact does a presidential Twitter attack on the US Federal Reserve actually have?
The answer offers reasons for hope — and fear. On the upbeat side, the tangible market impact of Donald Trump’s demands for looser monetary policy have been modest so far, the research suggests; the implied yield on Fed Funds futures contracts apparently declined by an average of 0.30 basis points after each attack, producing “the cumulative effect of around negative 10 bps” so far. This is so small in the wider scheme of things that it would undoubtedly disappoint Mr Trump in the (unlikely) event he read this research.
What is less cheering is that the fact futures prices moved at all after Mr Trump’s tweets suggests that “markets do not perceive the Federal Reserve Bank as a fully independent institution immune from political pressure”, the economists argue. There is, in other words, already some implied damage.