(Kitco News) - Fear that the Federal Reserve will lose its independence has been a significant factor behind gold’s rally to record highs, and according to one market strategist, it could lead to the next $500 move.
The U.S. Supreme Court said on Wednesday that it would hear oral arguments on Jan. 21 regarding whether President Donald Trump has the authority to fire Federal Reserve Gov. Lisa Cook.
Trump has been trying to remove Federal Reserve Governor Lisa Cook from the central bank’s monetary policy committee since August. His attempt to fire her is based on allegations that she made false representations on mortgage agreements several years ago. However, Cook has not been charged with any civil or criminal offense.
Analysts see Trump’s aggressive tactics as an effort to stack the central bank with dovish members who would support substantial rate cuts next year.
In a note on Wednesday, Rhona O’Connell, Head of Market Analysis at StoneX, said the gold market will be paying close attention to this decision in the new year.
“If found in favour of the President, this could be good for a fresh $500 on the gold price on the back of reduced Fed independence vs political influence. This would be a bullish factor in itself, but there could be further ramifications from a weaker dollar. If the Court finds in favour of Cook, then the reverse would be the case,” she said.
Although the Supreme Court will hear oral arguments in January, it is not expected to issue a ruling quickly, so Cook is expected to remain a central bank governor for the foreseeable future.
While the Federal Reserve has restarted its easing cycle, it has been reluctant to move aggressively as inflation pressures remain stubbornly elevated. After cutting interest rates by 25 basis points at the start of the month, Federal Reserve Chair Jerome Powell said that a December rate cut is not a foregone conclusion.
However, economists and market analysts have said that weakening private-sector labor market data could force the Federal Reserve to cut rates next month. The CME FedWatch Tool shows markets see a 65% chance of a rate cut.
Cook is not the only labor-related issue the central bank will face next year. Powell’s term as Chair will end in May, and there are questions of who will replace him.
