Trump's vast power to reshape the Fed will be the next major source of uncertainty for markets

USD is sitting on a bullish ship along with Trump carrying a bomb inside.

USD overvalued and behaving strangely.

"vast power" Mein Trumpf

or are the other currencies just weak...?

But Yellen announced accomodative policy either. Should it be negative for USD, or not?

Now, China reacts.

I think it is exactly the other way around lol!
Fed owns the shop, by far the most powerfull financial institution in the planet, and they are privately owned.

what is about gold and silver

they're shiny

The Federal Reserve needs to be seen to act independently of the President and Congress in attempting to achieve price stability and appropriate rate of economic growth (including jobs). If the FED strays from its mandates then the markets would quickly react e.g. if inflationary bias then long rates would increase and act as a drag on growth. If the President talks about changing the FED mandates through legislation then the markets would immediately price in higher inflation expectations and higher risks.

The FED's power has been built up over decades of attention to inflation expectations and appropriate policy reactions. The more you tinker with or even threaten to tinker with the FED's basic commitments and processes the more power will go to the markets and take away power from the FED.

As I've said elsewhere the FED is also still trying to get the US financial system back on track following the GFC because another mandate is the stability of the financial system. Tinkering with the FED legislation (and Dodd-Franks for example) will simply make it impossible for the FED to carry on with 'normalisation' and make it much easier to achieve another GFC.

Finally, re the USD, if inflationary pressures arise and the FED is not expected to react at all then the USD bulls will be very disappointed. People will want to get out of US bonds as fast as possible creating a net capital outflow and USD depreciation. Check out the attributes of safe haven currencies and see if you still want to go along with politicising the FED.

Excellent response, AnniLi.

I'm no expert on the matter, but a few quick questions, if I may:

1) What purpose does the dual mandate of the Fed serve? Doesn't it act in their own self-interests? Surely, the Feds must know that they are limited in their ability to control or even affect the jobs market at all.

2) Why is it a bad thing for the markets to price in higher risk? Isn't it about time they do that, given the artificially low interest rate environment we have been in for a while now (and thereby encouraging excessive risk taking)?

3) Do you worry at all about the Fed raising rates based on inaccurate data, or, even worse, political partisanship? What is your sense as to the timing and frequency?

4) Can the Fed even be trusted at all? They are a private organization, central to all aspects of the world. Don't you think it's about time they get audited? How is it possible for them to act independently, particularly if they have the ability to cook their own books, books that don't even need to be reported?

5) Why shouldn't the markets have the utmost power? Oh, wait, I think I know this one. It's like you said:
6) Does it take a rocket scientist to see that the Federal Reserve is gold-plated in hypocrisy?

I hope I am not mistaken, but there are many aspects of the system that do not make sense to me. And I am afraid they may never make sense. Perhaps someone here can enlighten me as to where I've gone wrong.

Very well written post AnnLi. Better than a lot of the articles published.

Who controls whom? I remember Bernanke coming out of a meeting with BHO very early on looking distinctly unhappy. My suspicion is that BHO told him he was spending trillions we did not have whether the Fed accommodated with QE or market interest rates soared. Ben took the prudent less destructive course.

Seven years later I think the Fed delayed raising rates so as to not effect the election process. But their inaction also had effects. Now they are likely to proceed with a series of small rather ineffectual 1/4 point increases so as to not jolt the markets. Those 17 increases before BHO came to be expected. But they have backed themselves into a corner. A larger increase is not feasible and every increase is harmful unless the Fed itself holds the national debt. They create the money, loan it to the government, and hold it at essentially zero interest. Other rates can be adjusted w/o magnifying the problem of the national debt.

Thee biggest problem I see with the Fed is that several foreign banks are part of it. Why? Does Ford have seats on the GM board? There is quite a bit of info released by the Fed so an audit is not likely to expose any big surprises. Most who push for an audit seem to have pushing a gold standard as their ulterior motive. Gold is anachronistic imo.

This is not intended to answer any of smash1820's questions. Just add my perspective. Hopefully AnnLi will reply to them.