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Next month, Wilbur Ross, 86, a prominent private equity figure and former commerce secretary in the Trump administration, is set to release his memoir, Risks and Returns. Investors should take note.
Within Ross’s fascinating business journey and transition from left-leaning to right-wing politics lies a remarkable incident involving Jay Powell, the chair of the Federal Reserve.
According to Ross, in 2018, the president was so enraged by Powell’s decision to raise interest rates that he instructed Ross to “call this idiot and explain to him that I will dismiss him” unless Powell changed course.
Ross hesitated, cautioning the president that replacing Powell might not be in his best interest. When Ross eventually made the call, Powell stood firm, asserting that he was not obligated to debate policy with the White House. Thus, the independence of the Fed prevailed.
Fast forward six years, and this incident may appear distant history, yet it serves as a reminder of the risks that may emerge if Trump wins in November. It also sheds light on the concept of the “normalization of deviance” that haunts today’s markets.
Recent weeks have witnessed a surge in equity prices, propelling the Dow Jones to new heights. Despite mounting risks, including geopolitical uncertainties and the upcoming US election, optimism prevails in the market as investors anticipate a soft landing for the American economy following Powell’s hints at an impending rate cut.
However, amidst this optimism, concerns loom large. Potential actions by Trump’s administration, such as weakening the dollar and implementing significant tax cuts, pose substantial risks to the economy, especially considering the need to sustain global investor confidence amid soaring national debt.
A victory by Kamala Harris could bring some policy continuity, yet her economic proposals carry their own risks, including increasing debt and unconventional measures like price controls. Moreover, a narrow victory for Harris could spark protests and civil unrest, further denting investor confidence.
Despite these risks, asset markets seem unfazed, buoyed by ample liquidity and a belief that Trump’s more radical impulses will be restrained. However, the notion of “normalization of deviance” raises concerns about complacency and the potential inability of the financial system to absorb future shocks.
Investors are urged to consider hedging against potential risks and reassess any normalized threats in the current market environment. The preservation of Fed independence may just be the tip of the iceberg.
gillian.tett@ft.com
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The cat sat lazily in the sun, grooming its fur.
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Basking in the sun, the cat groomed its fur leisurely.