Former Treasury Secretary Warns: Investors May Be Underestimating Federal Reserve Independence Risks

Fed Independence Under Fire—And Markets Aren't Paying Attention

Wake-Up Call

Former Treasury Secretary sounds alarm on political pressures threatening the Fed's autonomy. Investors keep betting on stable monetary policy like it's 2019—ignoring the gathering storm clouds.

Why It Matters

When central bank independence erodes, currency stability tanks and inflation spikes. Crypto thrives in that chaos—just ask anyone who lived through 2021's money-printing frenzy.

The Hidden Risk

Political interference isn't some abstract concept. It's appointments, pressure campaigns, and legislative threats that quietly compromise monetary decisions. But hey—Wall Street still prices everything as if the Fed operates in a vacuum.

Bottom Line

Underestimate this risk at your own peril. Or embrace the volatility—because nothing pumps altcoins like a good old-fashioned institutional crisis. After all, traditional finance's loss is crypto's gain... again.

Investors brace for long-term inflation as yield gap hits 70 basis points

Summers said the lack of response from the financial community is “really disturbing.”

He said finance leaders have focused more on criticizing Zohran Mamdani, the democratic socialist running for New York mayor. He said he suspects “the price of opposition” to the president is being driven higher by the range of tactics used against critics.

Summers said he worries that “highly irresponsible behaviors are being normalized by what the president is doing,” and by the failure of “the establishment” to resist and call out those actions. So far, he said, “There hasn’t yet been a dramatic market reaction” to the Fed-related maneuvers, though some signs of unease have appeared.

One signal he flagged. The yield premium of 30-year Treasuries over 10-year notes touched around 70 basis points this week, the widest since the inflation surge began in 2021. Longer-dated bonds are especially sensitive to where investors think inflation will settle over time. Those expectations could drift higher if markets come to believe the Fed will keep its policy rate artificially low at the expense of future price stability.

Summers warns “we are playing with fire” on inflation expectations

“We are playing with fire in terms of inflation expectations,” He said. “We haven’t seen substantial reactions in markets yet. But this could turn very quickly if the psychology changes.” He added that large U.S. budget deficits add further strain.

People familiar say Trump is exploring ways to gain more control over the Fed’s 12 regional banks, not just the Washington appointments. If courts uphold his move to remove Governor Lisa Cook, he could try to secure a majority on the seven-member Board, but rate decisions come from the FOMC, which also includes five regional bank presidents that the WHITE House doesn’t pick.

Closer scrutiny of how those presidents are chosen and reappointed, by each bank’s private board and the Board of Governors, WOULD be another unusual attempt to influence a process meant to be insulated from day-to-day politics.

Get $50 free to trade crypto when you sign up to Bybit now