Trump's Interventionist Policies Spark Muted Response from Wall Street

As US President Donald Trump intensifies his attacks on the Federal Reserve, the banking system, and private corporations, the reaction from Wall Street has been surprisingly calm. In contrast to the vociferous criticism from business leaders when the Democratic mayoral candidate in New York, Zohran Mamdani, proposed free buses, rent freezes, and city-run groceries, Trump's interventions have elicited limited public criticism from leading financiers and corporate leaders.

Key Takeaways:

• Despite Trump's direct attacks on the Fed, leading Wall Street figures have largely refrained from public criticism, with some even offering praise for his efforts to direct the economy.
• The administration's interventions in private companies, such as Intel and US Steel, are similar to European-style dirigisme, but have sparked little opposition from business leaders.
• The muted response from Wall Street is attributed to a combination of factors, including fear of presidential retribution, a desire to avoid confrontation with a powerful leader, and the sense that private persuasion may be a more effective tactic.
• Some business leaders have expressed concerns about the long-term implications of Trump's policies, which could lead to a fundamental shift in the way the US economy is run and potentially undermine the autonomy of key institutions.
• The lack of market reaction to Trump's interventions may be a sign of investor desensitization, but some economists and experts warn that this could be a temporary phenomenon that masks the damage to the Fed's credibility and the long-term health of the economy.
• The biggest obstacle to Trump's policies would be concerted opposition from leading Republicans in Congress, but so far, there have been few signs of public criticism from Republican leaders.

Statistics:

• Two-year Treasuries rallied by 2 basis points after Trump announced he was firing Federal Reserve governor Lisa Cook, but the move was modest compared to expectations.
• The foreign exchange market was more exercised by a speech by Fed chair Jay Powell at the Jackson Hole conference, which discussed the possibility of rate cuts.
• Markets have largely ignored Trump's attacks on the Fed, with some investors seeing the lack of reaction as evidence of a new paradigm: fiscal dominance, where central bank policy bends to politics.
• The administration's interventions in private companies have not had a significant impact on market prices, but some experts warn that this could change if the policies lead to a fundamental shift in the way the US economy is run.

Sources:

• Brooke Sopelsa, CNBC: Trump proposes nationalizing Intel to boost American manufacturing
• Anil Kashyap, University of Chicago's Booth School of Business: comments to FT reporters
• Charlie McElligott, Nomura: comments to FT reporters
• James Bianco, Bianco Research: comments to FT reporters
• Frederic Mishkin, Columbia Business School: comments to FT reporters
• Joel Griffith, Advancing American Freedom: comments on X