UBS: The politicization of the Fed will increase the risk premium on US bonds.

Golden Finance reports that Paul Donovan, Chief Economist at UBS Global Wealth Management, stated that the increasing politicization of the Fed will lead to a higher risk premium being priced into the U.S. bond market due to inflation uncertainty. He pointed out that this will raise the actual borrowing costs, increase the U.S. government’s debt repayment expenditures, meaning reduced fiscal stimulus space and decreased corporate investment, and it will also damage—but not destroy—the status of the dollar as a reserve currency. Fed Chairman Powell opened the door for a rate cut in September during his speech at Jackson Hole last Friday, but did not present an “appropriate medium-term policy framework” nor did he make a strong defense of the Fed’s independence. Meanwhile, President Trump has been continuously calling for the Fed to cut rates in recent months.