(Bloomberg) -- President Donald Trump's repeated attacks on the Federal Reserve are backfiring as they cause distrust in US institutions and a flight from US assets and the dollar, European Central Bank Governing Council member Joachim Nagel said.
Speaking at an event to mark the 90th birthday of former ECB and Bundesbank Chief Economist Otmar Issing, Nagel cited recent Bundesbank research examining the situation since early 2025. It showed that when Trump put pressure on the Fed this didn't lead to higher inflation expectations, but to lower Treasury yields, a fall in equity prices, a surge in gold and a weaker dollar.
"The authors interpret this as a risk repricing on two levels," Nagel said on Thursday. "First, within US markets, investors shift from equities to Treasuries — a domestic flight to safety. Second, the weaker dollar and higher gold prices show investors pulling away from US assets — a flight to safety outside the United States."
This suggests that "investors are not simply expecting easier monetary policy — they are worried about the integrity of US institutions and the far-reaching consequences that a loss of integrity would entail," Nagel said.
Trump's frequent criticism of the Fed and, in particular, Chair Jerome Powell over recent months has sparked concerns around the globe about the institution's autonomy and its future ability to set interest rates without influence from the US presidents.
His nominee to succeed Powell, Kevin Warsh, in a testimony this week pledged independence but dodged questions on borrowing costs, after Trump has for months urged policymakers to lower them aggressively.
"Attacks on central bank independence backfire," Nagel said.
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