Should investors worry about the politicisation of US economic institutions?

An independent central bank and impartial, high-quality statistics are core pillars of macroeconomic stability in modern market economies. In the United States, those pillars are coming under pressure. Public attacks on the Federal Reserve Chairman have intensified, and President Trump has dismissed the head of the Bureau of Labor Statistics (BLS) after the agency published data showing a dramatic cooling in the labour market. Against this backdrop, concerns about the politicisation of economic institutions are growing. In this month’s commentary, we examine how real that risk is, and what it could mean for investors.

Shooting the messenger

Indications of a faltering U.S. economy have drawn an immediate backlash from the Trump administration. After July’s jobs report showed non-farm employment rising just 73,000, with the tally for May and June revised down by a combined 258,000 - largest two-month downward revision to the jobs numbers since 1968[1] - President Trump fired BLS Commissioner Erika McEntarfer, stating that the figures were “rigged”.

To be clear, there is little evidence to back up Trump’s claim that the jobs data had been manipulated to make him look bad. Jobs data are frequently revised as initial reports are only preliminary, and figures are updated as more data is gathered. Declining response rates to payroll surveys since the pandemic, along with staffing shortages, might well have contributed to the large revisions. This is because initial estimates have come to rely more on imputation and statistical modelling, which are subject to revision.

However, Federal Reserve Governor Lisa Cook has also pointed out that large revisions are “typical of turning points” in the economy[2]. In this regard, a deterioration would not be entirely unexpected since most economists believe that the Trump administration’s tariff policies are likely to weigh negatively on economic growth (see our commentary of December 2024).[3]

Institutional guardrails

The way the employment report is currently compiled makes manipulation highly unlikely. At the BLS, data collection and analysis are decentralised across multiple teams, each following strict, standardised methods. This system of checks and balances means that, provided procedures are observed, experts agree it would be virtually impossible for the BLS Chief to rig the numbers[4].

In principle, existing policy directives requiring economic data to be collected and released objectively, transparently, and without political interference should provide robust safeguards against manipulation in the future. However, Trump’s nomination of E.J Antoni – current Chief Economist at the Heritage Foundation, a conservative think tank - to head the BLS has drawn criticism. Rather than a technocratic statistician, Antoni is seen by many industry insiders as a conservative ideologue, who is not adequately qualified for the job. Even if existing guardrails do remain effective, there is a risk that such a pro-Trump, partisan appointment will mean that data published under his leadership will lose credibility[5].

This would be a problem. If businesses, investors, and policymakers lose confidence in official economic data, decision-making will become riskier and less efficient. Companies may hold back on hiring and investment, while monetary and fiscal policies risk being set on flawed assumptions.

Moreover, even in the absence of outright manipulation, a new BLS Commissioner could reshape how data is presented or introduce methodological adjustments that subtly influence the figures without overtly breaching statistical protocols. This could be particularly problematic regarding the Consumer Price Index (CPI), which the BLS also compiles. 

Inflation data politics

Changes to CPI methodology which affect the measured rate of inflation could have widespread consequences because it is used to adjust cost-of-living increases for things like social security benefits, pensions, and tax thresholds. For example, if changes to the CPI calculation lower the reported inflation rate, future social security benefit increases could be smaller, even if actual prices in the shops are not rising any more slowly. This could save the government money, but households would be worse off in real terms.

For investors, the direct impact of any changes to the CPI will be most keenly felt in inflation-linked bonds, which in the US are known as Treasury Inflation Protected Securities, or TIPS. Because TIPS are directly linked to the CPI, any methodological change that lowers measured inflation would reduce future adjustments to a bond’s principal and coupons. JP Morgan point out that even small technical adjustments can have a meaningful impact. For instance, if US CPI were calculated using the Harmonised Index of Consumer Prices (HICP) methodology - which is used in the eurozone and excludes owner-occupied housing - it would lower annual inflation by around 20 basis points[6].

Other methodological modifications, including how prices are adjusted to take into account changes in the quality of goods and services (so-called hedonic pricing), adjustments to CPI weights or basket coverage could also be used to massage measured CPI inflation lower.

Fed independence in doubt

Concerns over possible data tinkering at the BLS come at a time when the independence of the Federal Reserve is also being tested. President Trump’s calls for the Fed to cut interest rates have intensified, and Treasury Secretary Scott Bessent recently suggested the Fed should cut rates by 50 basis points at its September meeting[7]. The President’s nomination of Stephen Miran – a Trump loyalist who is currently chair of the White House’s Council of Economic Advisers – to replace Governor Adriana Kugler, who resigned on 8^th August, has added to concerns of politicisation.

Miran’s nomination to the Federal Reserve Board of Governors - though only temporary until Kugler’s term would have ended in January 2026 - could signal a profound shift in the Fed’s traditional insulation from political influence. Miran’s past proposals for reform of the Fed - such as shortening governors’ terms and granting the president the power to remove board members at will - raise red flags for the central bank’s autonomy. These proposals, coupled with his dovish stance on interest rates, support for a weaker dollar, and willingness to use US dollar swap lines as tools of geopolitical leverage, have stoked fears that the Fed could increasingly prioritise partisan economic goals over stable, independent policymaking.

Looking ahead to next year, installing a Trump loyalist to lead the Fed when current Fed Chairman Jerome Powell’s term ends in May 2026 would further undermine the central bank’s independence. That said, while a Trump-aligned Fed chief would wield considerable influence over monetary policy, he/she would not have unchecked power. The Fed Chair controls the agenda, frames debates, and dominates communications that shape market expectations for monetary policy. However, he/she is only one of 12 voting members of the Federal Open Market Committee (FOMC). A Trump loyalist might consistently push for lower rates and emphasise data narratives favourable to easing, but monetary policy decisions ultimately require a majority vote by the FOMC.

Pending personnel changes at the FOMC will reinforce the dovish tilt at the Fed that has been apparent since the publication of the weaker-than-expected jobs data. The markets now see a 25-basis point rate cut in September as a near certainty[8]. Such a move would appear justified given the Fed’s dual mandate to promote maximum employment and stable prices, and the fact that policymakers see the current policy rate of 4.25–4.50% as modestly restrictive[9].

Market implications

However, a dramatic policy easing from a politicised Fed (Trump has called for rates to be cut by 300 basis points)[10]. that was at odds with the economic backdrop could damage credibility and shake confidence in the US dollar and US Treasury bonds. If the Fed were to cut interest rates aggressively for political reasons, the US dollar would probably fall. And while short-term borrowing costs would drop, longer-term interest rates on US government bonds would in all likelihood rise (and values fall), as investors demand extra protection against the risk of higher inflation in the future. Doubts about the quality of CPI data under a politicised BLS could exacerbate these trends.  

Interestingly, it would appear that investors are starting to assume that the Fed, under its next Chair, will bend to government pressure to keep borrowing costs low. The Bank of America Global Fund Manager Survey for August showed that 54% of respondents thought that the next Fed Chair would resort to Quantitative Easing (QE, or buying bonds) or Yield Curve Control (YCC, suppressing long-term interest rates) to help alleviate the US debt burden[11].

Outsized rate cuts combined with QE or YCC to suppress long-term bond yields might be welcomed by US equity markets, initially at least. Lower borrowing costs, capped yields, and increased liquidity would probably encourage risk-taking and boost valuations. Large-cap equities, notably in the tech and materials sectors, which derive a bigger share of their revenues from overseas than their more domestically focused small-cap counterparts[12] would benefit as a weaker greenback would mean higher foreign earnings when translated into US dollars.

However, over time, concerns about inflation, debt monetisation and the Fed’s credibility could push investors to demand higher risk premia, leaving equities more volatile and vulnerable. For foreign investors with unhedged US equity exposure, any rise in US markets may be offset by foreign currency losses if the US dollar depreciates sharply. Indeed, with overseas holdings now accounting for around 18% of the US equity market[13], such concerns could prompt foreign investors to scale back exposure, triggering capital outflows and downward pressure on US equity valuations.

Sufficient safeguards?

It is not yet certain that recent vacancies for top economic jobs in the US will be filled by candidates willing to do the President’s bidding. Although Stephen Miran’s appointment to the Fed seems assured given the Republican majority in the Senate, bipartisan criticism of E.J. Antoni’s suitability to head the BLS means the necessary congressional approval is not assured. Even when appointed, the influence of partisan appointees will be constrained by various institutional guardrails.

Fundamental changes that would facilitate greater presidential influence over economic institutions face a higher legislative hurdle. For example, amending the Federal Reserve Act - such as to grant the President authority to dismiss Board members at will, as Miran has suggested - would require 60 votes in the Senate to overcome a filibuster, a threshold that analysts view as highly improbable[14].

Even so, with the second Trump administration showing a willingness to break with long-standing norms, politicisation risks should not be dismissed lightly. Undermining traditionally non-partisan institutions such as the BLS and the Fed could carry serious repercussions for US financial markets. With credibility concerns potentially adding to downward pressure on the US dollar, foreign investors with unhedged exposure to US assets would be well advised to monitor developments closely.