Political Pressure on the Fed - Is This Time Different?

<div> We examine how financial markets respond to political pressure on the Federal Reserve&nbsp;<span>by US President Trump in his second term, in which his public calls for lower&nbsp;</span><span>interest rates coincided with unprecedented efforts to reshape the Fed Board. Using&nbsp;</span><span>a dataset of dozens of political pressure events in 2025, we use high-frequency asset&nbsp;</span><span>price responses as multi-dimensional external instruments in a proxy VAR, identifying&nbsp;</span><span>a political pressure shock on the Fed. We find that, unlike during Trump’s first&nbsp;</span><span>term, Fed pressure does not materialize as a de facto monetary easing: although interest&nbsp;</span><span>rates decline, equity prices tend to fall and measures of uncertainty rise. The&nbsp;</span><span>price of gold increases particularly strongly. The identified shock can account for&nbsp;</span><span>much of the response by financial markets to the “Liberation Day” tariff announcements&nbsp;</span><span>in April 2025, and continues to weigh on the USD, indicating a sustained&nbsp;</span><span>loss of confidence in the US.</span> </div>