Donald Trump's recent order to remove Fed Governor Lisa Cook has sparked controversial responses and discussions about the legitimacy of this decision. We explore the potential consequences of this move for the financial system and the crypto market.
Trump's Move Against the Fed
President Donald Trump wrote a letter to Governor Cook demanding her immediate removal, citing the Federal Reserve Act's 'for cause' removal provision. He highlighted two properties purchased by Cook in 2021 located in Georgia and Michigan, both listed as her primary residences, which raised questions around the legitimacy of the situation. Cook, however, has stated her intention to continue her duties and contest the legality of her potential dismissal, arguing that Trump lacks the authority to act in this manner. 'Trump purported to fire me for cause when no cause exists under the law,' said Cook.
Impact on the Crypto Market
As the battle continues between Trump's insistence on firing Cook and Cook's resistance, the independence of the Fed and the broader financial markets may be affected. Many investors view Trump's pressure as a potential indication that the Fed might yield to expectations for a rate cut, leading to a rise in cryptocurrency prices. Following the news, Bitcoin increased by 0.5%, while Ethereum surged by 1.5%. However, the overall crypto market cap witnessed a slight decline of 1.5%, totaling $3.86 trillion.
Challenges for Stablecoins
After Trump's announcement of Cook's removal, the U.S. dollar weakened by 0.07% against other currencies. Investors reacted by selling long-term U.S. government bonds, causing a rise in 30-year Treasury yields by 0.04 percentage points to 4.93%. As the dollar weakens, so do the stablecoins pegged to it. If Treasury securities experience volatility, this could complicate the redemption processes for stablecoin issuers, as these assets are largely backed by short-term U.S. Treasuries and cash equivalents. Furthermore, any political interference that undermines confidence in the Fed's ability to implement sound monetary policy may also tarnish the credibility of the dollar.
Trump's action to remove Lisa Cook marks a pivotal moment that could significantly impact both the cryptocurrency market and the broader financial system. The ramifications of this situation warrant close monitoring, as they may shift dynamics not just in the U.S. but also globally.
