Trump Is Moving into 'Lame Duck Territory' says Treyz

Henrietta Treyz, Managing Partner and Director of Economic Policy at Veda Partners, to Bloomberg Intelligence to discuss EU reciprocal tariffs, Greenland the looming US Government Shutdown.

Lawmakers clinched a deal on their last set of spending bills as Congress races to fund the government by the Jan. 30 deadline.

US Treasury Secretary Scott Bessent urged calm amid a growing transatlantic rift over President Donald Trump’s ambitions to take over Greenland, calling for allies to honor their trade agreements and dismissing suggestions that Europe would forcefully retaliate by dumping US treasuries.

For weeks on Wall Street, markets were unusually subdued as President Donald Trump threatened the post-war order by asserting US dominance of the Western hemisphere.

But with his drive to take over Greenland throwing the European and American alliance in disarray — and Japanese bonds plunging on concerns over the country’s finances — the calm abruptly snapped.

As stock markets opened on Tuesday, the “Sell America” trade came back in full force as Treasuries and the dollar slid. The S&P 500 dropped as much as 1.5%, briefly erasing all of this year’s gains, before paring the drop. The VIX Index, a measure of expected stock-market swings, topped the highest since November, and gold — a go-to haven — rose to a new record of over $4,700 an ounce.

The moves show that investors’ previous willingness to shrug off Trump’s actions — including the White House’s capture of Venezuela’s leader, its threats to nearby countries, and renewed attacks on the Federal Reserve — is beginning to erode.

But Trump’s demand for US control over Greenland is stoking investor anxieties about potential worst-case scenarios, including a rupture in the NATO alliance, a full-blown trade war, or European steps to foment market turbulence as a way to force the Trump administration to back down.

“Our bet is that in the base case the severity will ultimately still be contained as investors bet on some version of a compromise,” wrote Krishna Guha, head of central bank strategy at Evercore ISI. “But the impacts would be very severe if this goes off the rails, and there will be long-lasting implications, including for the dollar.”

President Donald Trump’s search for a new Federal Reserve chair is becoming a hunt for an elusive unicorn candidate as blowback from his attacks on the central bank complicates the decision.

Trump is trying to check several boxes in a replacement for the current chair, Jerome Powell: He wants a loyalist who will pursue steep interest-rate cuts, commands credibility both with Wall Street and the president’s MAGA base, and has a shot at Senate confirmation — all with the telegenic, central-casting factor that Trump seeks.

The already-delicate balancing act has been made more challenging by a Department of Justice probe into Powell that has prompted a key Republican senator to block all of Trump’s Fed picks, creating tensions that Trump’s Greenland threats may further inflame. And a cold truth is setting in: none of the top candidates may fully check every box.

“It won’t be easy to find a pick that both President Trump and bond markets like, unless he fundamentally reconsiders what he’s looking for,” said Tobin Marcus, head of US policy and politics at Wolfe Research.

Trump’s shortlist includes National Economic Council Director Kevin Hassett, BlackRock executive Rick Rieder, current Fed Governor Christopher Waller and a former governor, Kevin Warsh. Trump is some

--------

Watch Bloomberg Radio LIVE on YouTube

Weekdays 7am-6pm ET

Follow us on X

Subscribe to our Podcasts:

Bloomberg Daybreak

Bloomberg Surveillance

Bloomberg Intelligence

Balance of Power

Bloomberg Businessweek

Listen on Apple CarPlay and Android Auto with the Bloomberg Business app:

Apple CarPlay

Android Auto

Visit our YouTube channels:

Bloomberg Podcasts

Bloomberg Television

Bloomberg Originals