Dan Ivascyn of PIMCO Stresses Importance of Fed Independence
"Bond Market Needs Clear Signals That Powell Will Serve Full Term"
There has been a warning that President Donald Trump's attempts to undermine the independence of the Federal Reserve (Fed) could have a seriously negative impact on the markets.
Dan Ivascyn, Chief Investment Officer (CIO) of PIMCO, the world's largest bond investment firm, stated in an interview with the Financial Times (FT) on the 24th (local time), "The market places great importance on the independence of the central bank, at least when it comes to setting policy rates."
He continued, "There is always tension among policymakers," adding, "However, any attempt to weaken the independence of the central bank would be extremely harmful to the market."
These remarks came as President Trump was scheduled to visit the Fed headquarters in Washington, D.C. later that afternoon. It is highly unusual for a sitting president to make an official visit to the central bank, the first such event in about 20 years. President Trump has repeatedly demanded rate cuts from Fed Chair Jerome Powell and has even mentioned the possibility of dismissing him. During this visit, he is expected to further increase pressure by raising concerns over the excessive renovation costs of the Fed headquarters building.
Recently, some voices on Wall Street have argued that Chair Powell should voluntarily resign to protect the central bank's independence. Previously, Mohamed El-Erian, former CEO of PIMCO, current Dean of Queens' College at the University of Cambridge, and advisor to Allianz Group, also asserted that Powell should step down.
Regarding this, CIO Ivascyn dismissed the idea as "not very convincing," stating, "It is preferable for an excellent and independent Fed Chair to decide on the next step after completing their term." He added, "From the perspective of the bond market, it is important that there continue to be positive signals indicating that Chair Powell can serve out his full term."
In the market, there are projections that if President Trump forces the dismissal of Chair Powell, U.S. long-term Treasury yields could surge. While short-term Treasury yields may fall due to expectations of Fed rate cuts, the undermining of monetary policy independence could, in the medium to long term, lead to concerns about inflation and a decline in long-term confidence in the U.S. economy, thereby increasing the risk premium on government bonds.
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