Why Investors Aren’t Pricing Inflation Into Trump’s Fed Takeover Bid

Core Insights - President Trump's influence over the Federal Reserve has raised concerns in the monetary policy community, yet the bond market remains relatively unaffected [1][4] - Investors are not anticipating higher inflation in the U.S., despite warnings from experts regarding the potential risks associated with diminished central bank independence [2][5] - The Federal Reserve recently lowered interest rates for the first time in 2025, while maintaining a cautious approach towards inflation risks [6] Inflation Expectations - Market-based measures of inflation pressures have decreased from their July peaks and are consistent with the two-year average, with medium- and long-term gauges close to the Fed's 2% target [2][7] - A New York Fed survey indicates that consumer inflation expectations for three and five years ahead have remained around 3% for several months [7] Bond Market Reactions - The bond market's five-year inflation outlook is approximately 2.3%, aligning with the Fed's own inflation gauge [7] - Despite various risks highlighted in the media, market participants appear desensitized, waiting for tangible evidence of problematic decisions that could impact long-term inflation [5]