Markets are beginning to price in a risk premium surrounding a potential takeover of the Federal Reserve by Donald Trump, particularly after the dismissal of Governor Cook and pressures regarding the 2026 nominations for regional presidents. Historically, the Fed has ebbed and flowed between political influence and independence. President Trump has indicated he expects to have a majority of his nominees on the Fed board soon, implying a shift towards a more politically aligned Federal Open Market Committee (FOMC). The typical apolitical nature of Fed governor appointments is changing as political affiliations become more pronounced. The market shows signs of pricing in risks related to possible instability in inflation and price control as Trump gains influence. The divergence between inflation expectations, indicated by five-year inflation swaps, and falling oil prices suggests emerging concerns over the Fed's independence and its ability to manage inflation effectively. Observers are urged to monitor these dynamics over the coming year, as they may lead to significant market volatility.

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