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Bridgewater flags Fed independence as key US election issue

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Bridgewater Associates, one of the world’s largest hedge funds, has identified the independence of the US Federal Reserve as a critical concern in the upcoming presidential election, according to a report by Reuters citing a recent Bridgewater client commentary.

The hedge fund, which managed approximately $100bn in assets as of August, highlighted growing worries among investors about potential political influence over the Fed pointing out that the central bank’s autonomy is crucial for investors, as interference in monetary policy could disrupt expectations for inflation and economic growth both in the US and globally.

“Probably the most structurally important issue is Fed independence, and how this affects the agility of US policymakers,” said Greg Jensen, Bridgewater’s co-chief investment officer, in reference to possible policy changes after the election.

Republican nominee Donald Trump has previously expressed interest in influencing the Fed’s decisions, suggesting that the US president should have a say over interest rates. While Trump recently stated he would not directly order changes to interest rates if elected, he reiterated that he believes the president should have the right to advise the central bank.

“Trump has often said he thinks he’d be a better central banker than the central banks,” said Jensen. “The pressure on US institutions is rising, especially with Trump making it clear that he thinks the Fed should be less independent.”

Trump’s campaign did not respond to a Reuters request for comment on Bridgewater’s concerns.

In contrast, Democratic nominee Kamala Harris has vowed not to interfere with the Fed’s operations if she wins the 5 November election.

Jensen emphasised that Bridgewater isn’t taking a definitive position on the election outcome, given the tight race between Trump and Harris, and the uncertainty surrounding the potential impact of a Republican or Democratic victory.

“Post-election, we see significant opportunities,” Jensen said, referring to potential shifts in market dynamics after the vote.

A recent Reuters/Ipsos poll showed Harris holding a narrow 46% to 43% lead over Trump, a slight change from a week earlier. However, prediction markets currently favour Trump’s chances of winning.

Jensen noted that both candidates offer “very live” prospects for radically different policies, which could include a range of issues such as immigration, tariffs, regulation, and geopolitical tensions.

He further noted that the two most significant risks facing the US economy are the election outcome and the pricing of key financial assets like bonds and equities, warning that “there’s very little room for error.”

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