Central Banks Unite to Defend Fed's Powell

United States greenhouse gas emissions climbed 2.4% in 2025, marking the first increase in two years and outpacing the nation's economic growth, according to a new report from the Rhodium Group. The analysis highlights a reversal of the recent trend where economic expansion was decoupled from emissions growth.

The primary drivers behind the surge were increased energy consumption in buildings and a significant uptick in power sector emissions. The U.S. economy, measured by real GDP, expanded by a projected 1.9% during the same period, meaning emissions intensity rose for the first time since 2022.

Power Sector Demand Revives Coal Generation

The power industry was a major contributor to the emissions increase, with its output rising by 3.8%. This was largely a consequence of soaring electricity demand from data centers powering artificial intelligence and bitcoin mining operations.

This surge in demand pushed natural gas prices higher, making coal a more economically viable alternative for power generation. As a result, coal-fired generation jumped by 13% in 2025. This marks only the second year in the past decade that the use of this carbon-intensive fuel has increased, interrupting a long-term decline that has seen coal generation fall by 64% since its 2007 peak.

Heating and Transportation Emissions Trends

Beyond the power grid, direct fuel use for heating buildings also drove emissions higher, rising by 6.8% from the previous year.

Meanwhile, transportation emissions were contained, partly due to the growing adoption of electric vehicles. However, the report cautions that the repeal of federal tax credits in 2025 could slow the growth of the EV market and apply upward pressure on emissions in this sector.

Future Outlook and Policy Impact

According to the Rhodium Group, the 2025 emissions increase does not yet reflect the full impact of policy shifts under the Trump administration, which has moved to roll back environmental regulations and reduce incentives for renewable energy.

The report warns that the situation could change in the coming years, particularly if electricity demand from data centers continues to surge and is met by existing fossil fuel plants rather than new clean energy sources.

This policy landscape represents a departure from the previous administration's climate goals. The Biden administration had set a target under the Paris climate agreement to cut greenhouse gas emissions by 61%-66% below 2005 levels by 2035. The Trump administration subsequently withdrew the United States from the Paris agreement and abandoned that target.

President Donald Trump has announced a 25% tariff on goods from any country doing business with Iran, a move that places China and the United Arab Emirates at the forefront of economic risk.

The new policy, which Trump stated would be effective "immediately," aims to intensify pressure on the regime of Supreme Leader Ayatollah Ali Khamenei. The threat comes as Iranian authorities crack down on over two weeks of nationwide protests, which have received vocal support from the U.S. president.

China and UAE: Iran's Top Trading Partners

According to data from the International Monetary Fund, China is Tehran's largest trading partner, with their commerce totaling $17.8 billion in 2024. The relationship is critical for Iran, which sends nearly 90% of its oil exports to China. This trade activity now exposes Beijing to significant U.S. tariffs, despite a trade truce agreed upon with Washington in October.

The United Arab Emirates follows closely, with $16.1 billion in trade with Iran. The exposure drops off significantly after the top two, with Turkey in third place at $8.8 billion.

Broader Impact on Europe and Asia

The tariff threat extends beyond the Middle East and Asia, implicating several of Washington's European allies. Germany and Switzerland, for instance, have combined trade with Iran amounting to nearly $3.5 billion.

Other major economies also face potential consequences. India, which has previously navigated trade disputes with the U.S., is Iran's fourth-largest partner. Uzbekistan, a nation that signed a new trade and economic deal with the Trump administration in November, recorded $1.3 billion in trade with Iran in 2024.

Tariffs Fueled by Unrest in Iran

The political backdrop for these measures is the widespread unrest within Iran. The protests originally erupted late last year following a sharp devaluation of the Iranian currency, a direct result of severe sanctions tied to the country's nuclear program.

These demonstrations have since evolved into the most significant and violent challenge to Khamenei's authority, drawing global attention and contributing to a rise in oil prices. The sentiment was echoed by German Chancellor Friedrich Merz, who on Tuesday became the first G7 leader to predict the Iranian regime was in its "final days."

Uncertainty Surrounds Implementation

Despite the announcement, crucial details about the tariffs remain unspecified. The Trump administration has not clarified which specific transactions, goods, or entities would be targeted, nor how the policy would be enforced.

Tracking compliance is further complicated by the opacity of Iran's official trade data, as the country often limits statistical releases and uses third-country channels to circumvent sanctions. So far, China, the UAE, Turkey, and India have not issued public comments on the proposed tariffs.

Capital flows into gold amid rising geopolitical and broader market risks, together with Jerome Powell's remarks about potential criminal prosecution, have not only driven XAU/USD to record highs (as discussed earlier today) but have also put pressure on the US Dollar Index (DXY).

Markets are also digesting the latest Non-Farm Payrolls data released on Friday. The figures pointed to a slowdown in the US economy, with actual job growth at 50K versus expectations of 66K. This reinforces the case for interest-rate cuts and acts as a bearish factor for the US dollar.

As a result, the dollar index is moving lower today.

Technical Analysis of DXY

In the final days of 2025, when reviewing the DXY chart, we:
→ reaffirmed the descending channel (highlighted in red);
→ suggested that it would remain a key technical guide into early 2026.

This view has been confirmed, as the upper boundary of the channel is acting as strong resistance. Today's decline appears to be a reversal from this level. In this context, it is reasonable to assume that:

→ the recent move represents an intermediate A–B–C corrective rise within a broader downtrend, with point C coinciding with RSI overbought conditions;
→ the short-term upward trajectory (marked by blue lines) may soon be broken by sellers. If the broader downtrend resumes, DXY could slide towards the median of the descending channel.

Source: FXOpen

President Donald Trump is launching a new populist economic message, using social media and high-profile interviews to address voter frustration ahead of the midterm elections. His next stop is a key battleground state where he will make his case directly to workers and business leaders.

On Tuesday, Trump will visit a Ford Motor Co. factory that builds F-150 trucks and speak at a Detroit Economic Club event, promoting his tariff and manufacturing policies as solutions to rising costs.

This visit is his third to a bellwether state since early December, signaling a new push from the administration to combat inflation and high gas prices. "With a little bit of patience, the American people are going to continue to see that the best is yet to come," White House Press Secretary Karoline Leavitt told Fox News.

A Flurry of New Policy Proposals

With the November midterms approaching, the Trump administration is accelerating efforts to convince voters it is focused on their financial well-being. Since the start of the year, the administration has proposed a series of populist measures, including:

• Capping credit card charges.

• Banning institutional investors from purchasing rental homes.

• Buying mortgage-backed securities to lower interest rates.

• Intensifying pressure on the Federal Reserve.

In a recent social media post, Trump also stated he wants to prevent "big Technology Companies" from passing higher utility bills to consumers, a consequence of the energy demand from new AI-linked data centers.

Democratic strategist Jim Manley sees this as a sign of desperation. "It reinforces the idea that he understands that he's in a bad place right now and he's throwing everything but the kitchen sink at it," he said.

An Unexpected Call to Elizabeth Warren

In a surprising move demonstrating the political weight of "affordability," Trump called longtime critic Senator Elizabeth Warren on Monday. The call came just after the Democratic senator gave a speech criticizing her own party for not fully embracing a populist economic agenda.

"I'm not going to talk about details of a conversation, but I just want to say it was all about costs, about how we reduce costs for American families," Warren said on Bloomberg Television.

While critical of the president's broader economic policies, Warren said she would "absolutely" work with him on issues she supports, such as passing legislation to cap credit card rates, "if he will actually fight for it."

A White House official confirmed the two had a productive conversation about credit card interest rates and housing affordability.

Polling Headwinds and GOP Anxiety

Despite the focus on pocketbook issues, many Republican lawmakers worry that headlines about foreign policy—from Venezuela to Iran and Greenland—are overshadowing the administration's economic message.

Recent polling reflects this challenge. A Quinnipiac University poll last month showed Trump's approval at 40%, with 54% disapproving. Only a third of voters rated the economy as "excellent" or "good," while 65% described it as "not so good" or "poor."

Michigan: A Battleground's Economic Reality

Trump's visit to Michigan is his second this term, underscoring the state's importance. Michigan was a key part of the "blue wall" that narrowly fell to him in 2024, and this year its governor's race, a Senate seat, and several close House races could be pivotal.

The state's economy under Trump presents a mixed picture. While Michigan's unemployment rate fell from 5.5% in April to 5% in November, the improvement was partly due to a shrinking labor force, with over 55,000 fewer people working or looking for work.

Michigan's economy is also uniquely exposed to Trump's tariff policies. Automakers have seen profits squeezed and costs rise, though they have so far managed by focusing on more expensive trucks and SUVs and getting some tariff relief on parts from Canada and Mexico. Forecasters at the University of Michigan project the state will lose 2,000 jobs this year, with unemployment expected to rise to 5.6% by the second quarter.

Strategy and Outlook for November

It remains unclear if Trump will increase his travel to battleground states. With ten months until the midterms, a Republican source close to the White House expressed confidence in holding the Senate but was more skeptical about the House. The source noted that the administration should have been more attuned to cost-of-living issues, which drove many voters to Trump in 2024.

After limited domestic travel in 2025, Trump held two campaign-style events in December in Pennsylvania and North Carolina. Advisers reportedly want him on the campaign trail more often to sell his policies.

Republican pollster Greg Strimple noted that Trump has a significant financial advantage. "I think that they are going to have money to define the race economically earlier in the cycle than normal," he said. Strimple also suggested that Trump's own anxieties could be a powerful motivator, pointing to the president's warning to lawmakers that he could face impeachment if Democrats retake the House. "I think that's animating," Strimple said.

The second week of the new year started with a lot of jitters and soul-searching as Donald Trump stepped up pressure on the Federal Reserve (Fed), sending the DoJ after Fed Chair Jerome Powell over the Fed's HQ renovations. But remember: Powell stood up for himself and made it very clear that the allegations had more to do with Trump's frustration that the Fed is not cutting interest rates at the speed he desires — a pace that would better serve his political ambitions.

And it's striking how powerful politicians are not told by those around them that the Fed cannot simply cut rates without consequences. Doing so would — leaving reputational issues aside — revive inflation and make matters worse. It wouldn't help solve the cost-of-living crisis, it wouldn't bring inflation down, and it wouldn't make housing more affordable. It would have the opposite effect.

This is why we are seeing the US yield curve steepen in response to serious attacks on the Fed's independence. The long end of the curve is rising faster than the short end on expectations that aggressive rate cuts today would push down short-dated yields, but ultimately fuel inflation and require tighter policy further down the road.

The US dollar is also feeling the pinch from the turmoil around the Fed. The debasement trade continues as investors lose confidence in a weakened Fed, which would be forced into looser monetary policy — resulting in weaker growth and higher inflation. I found the latest reactions from former Fed heads — iconic names such as Janet Yellen, Ben Bernanke and Alan Greenspan — exceptionally sincere. They warned that "this is how monetary policy is made in emerging markets with weak institutions, with highly negative consequences for inflation and the functioning of their economies."

If you have any doubt, Turkey is a striking example of what happens when a country undermines its central bank and hands control to a president who insisted that "higher rates cause inflation," pointing to Japan as historical evidence. Of course, Japan's liquidity trap had nothing to do with Turkey's economic fundamentals. Outcome? Inflation exploded, the lira collapsed — and not into golden dust — and the country has been steadily getting poorer since then.

Could the same happen to the US? The Titanic was made of iron, Sirs — and yes, it sank.

The debasement trade — the trade of a weakening US — is also boosting appetite for hard commodities. Gold and silver traded at fresh record highs yesterday, with silver consolidating near $85 per ounce this morning. I think it's only a matter of time before the white metal tests the $100 mark. There is little to stop the debasement trade as headlines worsen by the day.

Another example of a fallen star is Great Britain. Even though institutions remain strong, trust in — and appetite for — sterling deteriorated so badly after Brexit that reversing the trend looks extremely difficult. So again, yes: the Titanic can sink. And this time, the consequences would be global. The US dollar is involved in roughly 90% of global FX transactions, so the ripple effects could be enormous.

Turning to US equities, markets gap-opened lower yesterday, as rising rate-cut expectations are only half-good news. But buyers stepped back in, particularly into tech names helped by a weaker dollar, and the S&P 500 closed the session at a fresh record.

Make no mistake: the cheap dollar is powering part of this rally. While S&P 500 gains look impressive in nominal terms, the picture changes once returns are converted into other major currencies. The SMI, for example, may look unappetizing at first glance, but the Swiss index returned more than 15% last year, while the S&P 500 lost value in Swiss-franc terms. This is why hedging USD exposure matters. The US dollar is no longer the automatic safe haven it once was. In a selloff today, there is little reason to expect capital to flow into the dollar. Gold and silver look far more likely to absorb safety flows.

Today, the US releases its latest CPI data, while big banks kick off earnings season, with JPMorgan reporting Q4 results — just a day after Trump suggested credit-card interest rates should be capped at 10%, a comment that sent related stocks sharply lower. While last year was strong for trading and deal-making revenues, investors will focus on banks' economic outlook, loan-loss provisions, and views on AI productivity, credit quality, margins and capital deployment. Their guidance could set the tone for earnings season, as investors look for proof that Big Tech deserves its elevated valuations.

The S&P 500 is expected to deliver 8.3% earnings growth this quarter — the tenth consecutive quarter of positive EPS growth. Excluding the Magnificent Seven, earnings growth would fall to 4.6%. But expectations for coming quarters remain optimistic, helping avert a broader selloff despite unhelpful headlines — alongside continued liquidity support from the Fed. So I wouldn't necessarily sell America, but I would hedge US dollar risk.

In Japan, markets are shining as reports that PM Takaichi may dissolve the lower house and call a snap election boost sentiment. A strong victory could unlock greater fiscal stimulus, giving rise to what some are calling the "Takaichi rally." Tech stocks are leading gains, with the Topix up more than 2.5% at the time of writing, as she prioritises technology and defence investment. But the yields are to keep in mind: the 10-year JGB yield jumped to 2.16% this morning and the USDJPY is approaching the 159 level — a move that could soon trigger official pushback. Caution is warranted for those shorting the yen at current levels.

And a quick word on the risks posed by rising Japanese yields for global markets:Normally, rising JGB yields increase the risk of a global selloff, as higher domestic yields raise the incentive for large Japanese investors to repatriate capital and lock in more attractive returns at home. Today, however, global liquidity remains so ample that this channel matters less than it normally would.

Source: Danske Bank

Markets

Markets yesterday morning were pondering the chances and/or the potential reach of a revival of the 'Sell America' trade as the US Department of Justice served Fed Chair Jerome Powell and the Fed with subpoenas related the renovation of the Fed building. Powell reacted forcefully to what he sees an new attack on Fed independence.

In a first reaction in Aisa and Europe, US equities, the dollar and especially the ultra-long end of the curve suffered from rising US risk premia. However, tensions soon eased. If anything it turned out to be only a very light version of Sell America. US equities reversed early declines and even closed with marginal gains (S&P 500 +0.16%). The dollar indeed returned a limited part of its recent rebound. However, at a DXY close of 98.86 and EUR/USD at 1.167 the move was technically insignificant. US Treasuries underperformed Bunds, but bigger early session yield rises ended with a negligible steepening (2-y + 0.2 bps; 30-y +1.5 bps).

The 3-y ($58 bln) and especially 10-y ($39 bln) US Treasury auction also met more than decent investor buying interest. Maybe the pushback also from Republican Senators on the attack against Fed independence mitigated the market reaction. In Europe, interest markets extended the recent (corrective?) easing with German yields declining between 1.2 bps (2-y) and 2.6 bps (30-y). Expected softer inflation at the start of the year made markets conclude that the debate on an ECB rate hike is premature.

Especially Japanese markets show rather forceful moves this morning as press reports indicate a growing chance of PM Takaichi calling snap elections that might already take place mid-February. Japanese equities this morning are rising sharply on an the prospect of a potential ongoing fiscal stimulus . At the same time, risk premia at the long and of the yield curve are rising sharply (30-y +8.1 bp to 3.5%). The yen at the same time weakens (USD/JPY 158.9, weakest level of the yen since July 2024). Japanese Fin Min Katayama expressing concerns on this one-way decline of the yen in a meeting with US Fin Min Scott Bessent, for now didn't provide much support.

In the US, President Trump added another layer of uncertainty on already complicated US trade relations as he announced a tariffs of 25% on goods from countries that are doing business with Iran. For now, it is unclear which countries will be affected and how this will be implemented. US (equity) markets take a wait-and-see approach. Futures show negligible losses. Regarding the eco data, the US December CPI takes center stage. Markets expect 0.3% M/M and 2.7% Y/Y both for core and headline inflation. Figures still might feel some noise from the shutdown. We don't have a strong view on the risk to the outcome. Even so, a big downwards surprise is probably needed to reopen the debate on frontloading additional Fed easing. NY Fed president John Williams in comments overnight at least suggested that after the three consecutive rate cuts in H2 last year, the Fed is now well poisoned to stabilize the labour market and bring inflation back to target.

There are few data in EMU, but we look out on any potential spill-overs from the sell-off at the long end of the Japanese yield curve to other markets. In this respect, the US Treasury also sells 30-y bonds. The dollar (except for USD/JPY) shows little of a clear directional trend.

News & Views

The European Commission in a plan outlined yesterday is considering a minimum price system for Chinese electric vehicles that would replace current import tariffs. The latter range up to 35% and were introduced after the EC concluded Chinese-made EVs enjoyed an unfair advantage from subsidies at home. Beijing retaliated but negotiations have since taken place to avoid the matter spiraling into an all-out trade war. The plan, under which Chinese exporters submit a minimum price proposal, annual volume limits as well as future investments in the region, all for the EC to then assess, should be seen in this context of defusing tensions.

The British Retail Consortium's retail sales gauge rose by 1.2% in December, well below the 12-month average of 2.3%. Food sales rose 3.1%. The non-food category posted a 0.3% annual decline with both in-store and online sales falling in yearly terms. Same store sales rose 1% with a similar divergence seen in food (+2.7% y/y) and non-food (-0.5% y/y). BRC's Chief Executive Dickinson noted "It was a drab Christmas for retailers, as sales growth slowed for the fourth consecutive month." She explained food sales rose mainly due to ongoing food inflation and added that non-food sales fell flat as gifting items did worse than expected and consumers were holding out for discounts. Dickinson concluded that "These figures show that consumer spending remains cautious, with households squeezed by the rising cost of living. Now is the time to support struggling families […]".

Source: KBC Bank