Damn the Torpedoes – Full Speed Ahead!

Chair Powell’s term is set to expire in May 2026, but President Trump needs the economy and the stock market to perform well over the next 14 months—or the GOP’s chances of holding the House are shaky at best. That has Trump placing enormous pressure on Chairman Powell, including threats to sue him for mismanagement of ongoing renovations at the Fed as a means to replace him early.

Inside the Fed, there is a group (as always) that would like to be named the next Fed Chair and may have added some dissension into the Fed. Now factor in an economy that is showing signs of weakening (smaller job gains) and a slight uptick in inflation (due to tariffs?), and Powell is faced with an enormous juggling act over his final eight months—or less—in office.

The Jackson Hole Speech

The next Fed decision comes in September, and the bond market has been waffling about the prospects for a cut over the last several weeks. News this week indicated some growing turbulence in the jobs market, as both jobless claims and continuing claims rose. So, going into Friday’s speech, sentiment was leaning toward a dovish tone, though some Fed governors were still playing that down.

Powell delivered what the markets desired when he stated, “With policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.” That fully opens the door to a rate cut in September, and markets immediately priced in that outcome with both higher stock and bond prices. The weaker economic data leading up to the speech provides Powell with some cover against criticism that he succumbed to Trump’s pressure.

No matter which side of the ledger the September rate decision falls on, you can expect to hear cries that the decision was politically motivated—which makes the question of Fed independence impossible to ignore. The juggling act Powell needs to perform over the next eight months could be one worthy of Barnum and Bailey, but thus far, he has navigated the situation quite well.

The Independent Fed

Although the Fed has been subjected to political pressure many times before, the hostile takeover that appears to be developing is concerning. There are still many questions around Fed Governor Lisa Cook—what she did or did not do—and whether that situation is grounds for her dismissal. Nonetheless, on Friday, President Trump indicated that if she does not resign, he will fire her.

Whatever happens, make no mistake: the President’s activities related to the Fed are designed to keep the economy and stock market rolling as the political calendar moves into midterm campaign season. As we’ve seen with the gerrymandering in Texas and California, the House is likely up for grabs, and each side is pulling out all the stops.

Trump and Biden are similar in one important way: they are both big spenders. With lots of fiscal stimulus, it’s hard to imagine anything worse than a temporary slowdown. Valuations be damned—right now, the bias appears to be toward higher stock prices. Full speed ahead!

Have a great week!

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The views expressed in this commentary are subject to change based on the market and other conditions. These documents may contain certain statements that may be deemed forward‐looking statements. Please note that any such statements are not guarantees of any future performance, and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur.

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By: Adam