Investors seek protection from risk of Fed chief's ouster

Economic

Summary:

Trump’s push to oust Fed Chair Powell sparks investor concerns over inflation, Fed independence, and rising long-term yields. Markets brace for volatility, with growing preference for gold and diversified equities.

President Donald Trump's renewed calls for Federal Reserve Chair Jerome Powell's resignation have prompted investors to protect portfolios against the risk of higher inflation, as a central bank more willing to lower interest rates could fuel price rises and make lenders demand higher compensation to hold bonds.

While a Fed chief more friendly to cutting rates could be mixed for equities in the short term, it would translate into a weaker U.S. dollar, increased volatility in the Treasuries market and higher longer-term rates, meaning more expensive borrowing costs for mortgages and corporate bonds.

Since returning to the White House in January, Trump has repeatedly railed against the Powell-led Fed for not cutting interest rates, feeding concerns that Trump aims to put the Fed under his thumb.

Even JPMorgan (JPM.N) CEO Jamie Dimon on Tuesday warned of the unintended consequences of that, saying central bank independence was sacrosanct.

If market participants perceive that Fed independence is eroding, moves in financial assets could be wild, some analysts say. One of the top risks is that investors will sell Treasury bonds, lifting interest rates on longer-term maturities in the U.S. debt market relative to short-term securities.

"If markets believe that a politically-captured Fed will lower rates to stimulate growth regardless of economic consequences, long-term inflation expectations will rise, causing the curve to steepen," said Guy LeBas, chief fixed income strategist at asset manager Janney Capital Management.

"It's impossible to be confident in the magnitude of the move, but my guess is it'll be large - possibly measured in percent increases in 30-year Treasury yields, not basis points."

The minutes from the Fed's June 17-18 meeting, which were released last week, showed little support for a cut at the central bank's July 29-30 meeting, as most policymakers remain concerned about the inflationary risks that Trump's import tariffs could pose.

Even so, Trump has said Powell's resignation "would be a great thing." The president, who cannot fire the Fed chief over a monetary policy dispute, and his administration have publicly called for Powell's exit or for rates to be cut on multiple occasions this month.

"While short-dated yields could fall in this scenario based on a faster pace of Fed rate cuts moving forward, longer-dated yields would likely recalibrate higher for stickier inflation and rising term premia based on the erosion of institutional trust," said Chip Hughey, managing director of fixed income at Truist Advisory Services.

Bond investors are pricing in increased price pressures in the inflation market over the next few years. Breakeven inflation as indicated in the U.S. five-year Treasury Inflation-Protected Securities hit 2.476% late on Monday, a three-month high.

In a recent escalation of criticism of Powell, the White House is probing cost overruns in the renovation of the Fed's historic headquarters in Washington.

The questioning has intensified concerns among market participants over risks that the Trump administration will try to fire Powell for cause, perhaps the only legal path for it to do so. U.S. Treasury 30-year yields on Tuesday topped 5% for the first time since late May, as investors fretted about the country's huge fiscal deficit and assessed the risk of Powell's exit from the central bank.

A Fed spokesperson pointed to Powell's previous statements. The Fed chief, who was appointed by Trump during the president's first term in the White House, has repeatedly said he has no plans to leave his post as head of the U.S. central bank before his term expires on May 15, 2026. Powell's seat on the Fed's Board of Governors extends to January 31, 2028.

The White House did not immediately respond to a Reuters request for comment.

"I still see the risks as fairly minimal, but higher than they were a week or two ago," said Matt Orton, head of market strategy at Raymond James Investment Management. Orton still favors a diversification away from Treasuries and into gold, as well as both high-quality value and growth equities. "The risk-reward for me in Treasuries right now just isn't there."

ON THE HUNT

While the odds of Powell being ousted or resigning are viewed as low, analysts see some chance that Trump could nominate someone for the job early to influence monetary policy through a "shadow" Fed chief.

U.S. Treasury Secretary Scott Bessent said earlier this month the Trump administration is focusing now on finding a replacement for Powell this fall.

Morgan Stanley said in a note that the risk of a shadow Fed chief is a less relevant question at this point.

"Until Powell's term is up, though, the bigger risk to our Fed forecast is our economic forecast ... where we remain quite humble," Seth Carpenter, Morgan Stanley's chief global economist, wrote.

Although market participants see the risk of weakening the central bank's independence as low, many investors are increasingly incorporating this prospect into their portfolios.

JPMorgan CEO Jamie Dimon pointed to those risks in an earnings call on Tuesday, saying: "The independence of the Fed is absolutely critical, and not just for the current Fed chairman, who I respect, Jay Powell, but for the next Fed chairman."

"Playing around with the Fed can often have adverse consequences, absolutely opposite of what you might be hoping for," Dimon added.

George Bory, chief investment strategist for fixed income at Allspring, said the asset manager has been positioning for steeper yield curves, in line with an environment of future rate cuts and growing budget deficits.

"That strategy of positioning for a steeper yield curve over the coming months and quarters seems to make a lot of sense. It's justified economically, the technicals support it, and then the political landscape also," he said.

If stocks could get a boost from lower rates initially, the pressure from higher long-term rates would cast a shadow over them, investors say.

Jack Ablin, chief investment officer at Cresset Capital, said U.S. equities would "probably be OK, but I think that it would likely continue to accelerate the trend of global investors moving capital away from the U.S."

"Once investors question the independence of the Fed, it just becomes a less stable monetary environment," Ablin said.

Source: Reuters

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Stocks

Tech Weakness Pulls Nasdaq and S&P 500 Lower While Dow Gains on Bank Strength

U.S. markets traded mixed in the first hour of Wednesday’s session as tech sector losses, led by ASML, weighed on the Nasdaq and S&P 500. The Dow Jones Industrial Average rose about 0.3%, supported by bank earnings, while the Nasdaq slipped 0.1%. The S&P 500 held near flat, reflecting pressure from semiconductor names.

How Is ASML’s Outlook Hitting the Chip Sector?

Daily ASML Holding N.V.

ASML shares fell more than 6.5% after the company narrowed its 2025 revenue forecast and said it couldn’t confirm growth in 2026. That overshadowed a second-quarter beat on both top and bottom lines. The Dutch chip-equipment maker reported €7.7 billion in sales and €2.29 billion in profit, surpassing analyst estimates. However, its Q3 guidance of €7.4–€7.9 billion came in below the €8.3 billion consensus.

ASML attributed its caution to macroeconomic and geopolitical uncertainty, particularly the impact of tariffs. The reaction was swift: Marvell, Applied Materials, Lam Research, and Micron dropped between 3% and 5%, dragging down the broader tech space. The S&P tech sector dipped 0.2% early, capping broader market gains.

Can Strong Bank Earnings Keep the Dow Afloat?

Daily Goldman Sachs Group, Inc

Financials provided a cushion. Goldman Sachs and Morgan Stanley beat earnings estimates, though the latter traded lower following its results. Bank of America also topped expectations but slipped slightly as net interest income missed forecasts.

The financial sector gained around 0.2%, bolstered by continued strength from JPMorgan, Citigroup, and Wells Fargo earlier this week.

These results help offset weakness elsewhere, with investors rewarding consistent revenue and capital return over top-line surprises alone.

Does the Latest Inflation Data Support a Rate Cut Narrative?

The June Producer Price Index came in flat month-over-month, undercutting expectations of a 0.2% rise. That followed softer-than-expected consumer inflation data earlier this week and reinforced market hopes for Federal Reserve easing later this year. Still, with inflation above target and labor markets tight, analysts remain divided on timing and size of any rate moves.

Volatility on Deck as Technical Signals Flash Red?

Nasdaq and S&P500: Tech Stocks Slide on ASML Warning, Dow Gains on Bank Strength_3

Daily Volatility S&P 500 Index

BTIG flagged a cautionary signal: the S&P 500’s streak of closes above its 20-day moving average often precedes sharp volatility spikes. With earnings season heating up and geopolitical headlines in focus, traders should expect wider price swings.

Market Outlook: Cautious Optimism With High Alert

Early action shows sector divergence—strength in banks, weakness in chips. With inflation cooling and Fed policy uncertain, traders should stay nimble.

Upcoming earnings from major tech names and more inflation data could drive decisive moves.

Volatility strategies and earnings-driven setups may offer the most attractive risk-reward in the current tape.

source :fxempire

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Devin

Economic

Central Bank

The dollar briefly tumbled on Wednesday and Treasury bond yields popped higher on reports citing an unidentified White House official that U.S. President Donald Trump is likely to fire Federal Reserve Chair Jerome Powell soon, before Trump said he is not planning to do so.

Stocks also pared the mild losses that came off the original report from Bloomberg.

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Investors had been on edge for weeks about the prospect of Powell being removed from his job before his term ends next May, as Trump has repeatedly criticised him for not cutting U.S. rates quickly enough.

COMMENTS:

JAMIE COX, MANAGING PARTNER, HARRIS FINANCIAL GROUP, RICHMOND, VIRGINIA:

“The President would be making a mistake to fire Chair Powell. Federal Reserve independence is critical to money policy effectiveness, and the last thing the country needs is monetary policy by Presidential fiat. If the President messes with the Chairman, the Congress might use it as an excuse to step in to make changes to the Federal Reserve Act--none of these would be good for monetary policy integrity.”

CHRISTOPHER HODGE, CHIEF ECONOMIST FOR US, NATIXIS, NEW YORK:

“Much of Fed governance and process is informal, relying on norms and traditions, rather than statute. These norms have been developed over decades and have helped cement the Fed as a credible, trusted, and non-partisan institution that helps to smooth expectations volatility, rather than add to it.

"Maintaining the current traditions is the best route, but even if an alternative path is taken, there are likely sufficient guardrails to prevent a sustained and significant erosion of Fed credibility. If the new Chair is not viewed as credible and nonpartisan, there risks a serious split on FOMC decisions. In this light, selecting Waller as the replacement makes the most sense,”

KENNETH BROUX, HEAD OF CORPORATE RESEARCH FX AND RATES, SOCIETE GENERALE, LONDON:

"This story keeps churning so understandably markets are nervous that it could happen sooner rather than later re Trump firing Powell. Bond and FX markets do not like the uncertainty. We've had stronger U.S. CPI goods ex-autos just yesterday so to think that lower rates are the way forward as tariffs seep through consumer prices is not going to reassure. Hence long end USTs (US Treasuries)selling off versus the front end and the dollar is down."

JUAN PEREZ, SENIOR DIRECTOR OF TRADING, MONEX USA, WASHINGTON:

“Ultimately, what drives the U.S. dollar up in value against its peers, against everything is the idea that we have a financial system that's very centered around the U.S. dollar, and it is also a safe-haven asset.”

“What can kill the value of the U.S. dollar, what can absolutely destroy faith in the U.S. dollar, is attacking in any way, shape, or form the independence and authority of the Federal Reserve. Ultimately, when it comes to respecting and adhering to this concept of the U.S. dollar as a safe-haven asset in the midst of turbulence, that turbulence cannot affect or inflict pain when it comes to the greatest financial authority in the form of the Fed.

"But if politics, or if the White House, or if anybody can interfere with that, or wants to actively do so, that is absolutely a very, very negative thing for how the U.S. dollar is viewed, how the U.S. dollar is traded, and how people look at the dollar for the future.”

“In times of physical disturbance to the world, of geopolitical conflict, it makes sense to hold on to the U.S. dollar, but you're not going to hold on to the U.S. dollar if the one thing that makes it so solid, the Fed, is under attack. It really comes down to that.”

PAUL NOLTE, SENIOR WEALTH ADVISOR & MARKET STRATEGIST, MURPHY & SYLVEST, ELMHURST, ILLINOIS:

“(Trump’s) going to have to go through litigation in order to do it. He's just not going to be able to pink slip it like he did with different departments, the Department of Education or USAID or anything like that. So there is a process and to my knowledge, it has never happened before. So I'm not sure that it's going to be effective, other than to roil the market.”

“My understanding of the Federal Reserve and what can and can't be done – and this has been reviewed by others – is that this is not something he's going to be able to pull off and I'm not sure the Supreme Court is going to go along with it.”

“You’re now throwing up a lot of unknowns. Who's going to come in? What are they going to do? Will interest rates go down? Is that going to further inflation?”

“Powell has been steady. He's been consistent. Has he made mistakes? Yep. Everybody that's been in that position has. So I'm not sure that putting somebody new in there is going to fix all of those issues, but it does add an element of very much uncertainty to monetary policy.”

STEVE SOSNICK, CHIEF STRATEGIST, INTERACTIVE BROKERS, CONNECTICUT:

"Markets should be concerned about potential interference in the Fed's independence."

"Dollar plunging is what you'd expect. Short term rates getting hit going much lower is what you'd expect because whoever (Trump) put in would presumably be much more willing to cut rates.

"Stocks' reaction is a little muted because firstly traders remain loath to sell, they're just so programmed to try to buy dips that they're not eager to sell."

"Secondly because perhaps there are some traders who like the idea of lower rates more than more than the loss of independence."

RICK MECKLER, PARTNER, CHERRY LANE INVESTMENTS, A FAMILY INVESTMENT OFFICE, NEW VERNON, NEW JERSEY:

"It would be a big mistake on (Trump's) part if he is concerned about the markets and the dollar. An independent Fed gives balance between monetary and fiscal policy. I don't think that lowering rates here any small amount will really impact much about the economy. It might impact the debt interest payments but that's about it."

"One problem with this administration is they try and do an awful lot at the same time. And I don't know whether that's to try and get more things through rather than have a battle with Democrats over any one thing."

"But investors like orderly, carefully planned moves and this smacks of something that's just creating disorder and ramifications that I don't think the administration has completely thought out."

"It's a very unpredictable administration and that Trump in particular seems to take umbrage at the idea that he doesn't follow through on some of these things. So it wouldn't surprise me if they did (fire Powell). It wouldn't surprise me if they didn't. That's one of the problems in assessing investments under this administration is that there often is no clear path as to what's going to happen. And there's an awful lot of rhetoric that doesn't necessarily result in any specific action. So those are recipes for volatility but are not particularly good in terms of planning, either for corporate planning or for investment planning."

"It's very similar to the tariff situation. There's a lot of news that could be very meaningful, but no clear indication of whether it's going to come to fruition or not. So it just leaves a lot of investors confused, and many of them sitting on the sidelines trying to get a sense of where we're headed as a country financially."

MARCO VAILATI, HEAD OF RESEARCH AND INVESTMENTS, CASSA LOMBARDA, MILAN:

"It remains to be seen whether Trump will follow through on this threat. Such a move would almost certainly alarm the market, as it would call into question the Fed's independence from political authority. A less independent Fed, more beholden to this political leadership, would raise concerns — not so much about solvency, but about the very reliability of the U.S. dollar as the world’s reserve currency."

FRANCESCO PESOLE, FX STRATEGIST, ING, LONDON:

"If we get a headline today on Powell (removal), then we are looking at much more bigger sell-off in the dollar. Federal Reserve independence is the foundation the U.S.' status as the No.1 reserve currency."

"Given the implications of removing a Fed chair, the reaction is still relatively contained. Euro/dollar is at $1.17 and should be trading higher on this, because the implications are massive. Markets are still not fully pricing this all in. You would expect that if Powell is removed today, then the Fed cuts in September."

CHRIS BEAUCHAMP, CHIEF MARKET ANALYST, IG, LONDON:

"The news has put the dollar firmly on the back foot but has dragged stocks lower too. The Fed chairman’s departure would leave the independence of the central bank in question. It seems likely that his (Trump's) recent successes in passing his tax and spending bill, and the ceasefire in the Middle East, have emboldened the president to act."

"Now we will see if the bond market vigilantes will put the U.S. in their sights again. Such a dramatic move also suggests there is no backing down from tariffs this time around, especially with stocks at record highs."

LEE HARDMAN, SENIOR CURRENCY ANALYST, MUFG, LONDON:

"If that does happen (Trump fires Powell), it would be very damaging for investor confidence in the dollar, that’s why we’re starting to see the heavy selling, and it could extend further if he were to do so.

"It’s not clear-cut whether Trump has the power to fire Powell, so we would expect to see a legal challenge very quickly, but even if it were overruled, the hit to confidence would be long lasting, and it reinforces our bearish outlook on the dollar."

Source: Reuters

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Stocks

Large-cap tech stocks will likely soon be forced to meet the moment.

The do-or-die challenge for the tech bulls? A series of hot financial results and outlooks to match three months of hot stock price gains.

"I anticipate that the quality of earnings from these [large cap tech] companies will continue to be strong, but their ability to move their valuations to move higher and higher, completely unfettered, certainly is likely to be challenged here in the next couple of quarters," New York Life Investments chief markets strategist Lauren Goodwin said on Yahoo Finance's Opening Bid (watch above).

New York Life Investments has more than $800 billion in assets under management (AUM).

Goodwin cited cost challenges and trade uncertainty as risks to the sizzling tech trade headed into the second half of the year.

Unfettered tech valuations have been the modus operandi for the large-cap tech space of late.

High-profile tech names in Alphabet (GOOG, GOOGL), Meta (META), Nvidia (NVDA), and Microsoft (MSFT) have advanced an average of 35% in the past three months, according to Yahoo Finance analysis. The top two performers are AI darlings Nvidia and Meta, which have logged respective gains of 52% and 41%.

The four giant tech stocks have an average forward price-to-earnings (PE) multiple of 30 times, well above the S&P 500's (^GSPC) 22 times. Meta, Nvidia, and Microsoft's forward PE multiples are above their three-year averages, while Alphabet's is slightly below.

Large-cap tech's strong rally extends beyond the household names in the "Magnificent Seven" complex.

For instance, Broadcom (AVGO) is up 57% in the past three months, pushing its valuation multiples to some of the highest levels in five years. The same situation extends to Uber (UBER) after a 25% stock price increase in the last three months.

Nowhere has the rush to drive up large-cap valuations been more evident than in Nvidia.

On Wednesday, the company's market cap stood at nearly $4.2 trillion amid enthusiasm about its AI chips flowing back into China soon.

"The AI Revolution is just hitting its next stage of growth," crowed tech analyst Dan Ives of Wedbush, epitomizing the enthusiasm in the space.

But others eyeing the tech trade are beginning to echo Goodwin's more measured tone when putting money to work at higher valuations.

"We note that the recent rally in large-cap tech and AI stocks has been fueled mainly by price-to-earnings (P/E) multiple expansion," Ulrike Hoffmann-Burchardi, global head of Equities for UBS Financial Services, pointed out. "While we remain structurally bullish on AI, we would prefer to see further gains underpinned by upward earnings-per-share (EPS) revisions rather than valuation expansion alone."

She added, "Pockets of elevated valuations across leading AI companies, ongoing geopolitical uncertainty, and the upcoming second-quarter earnings season all point to the need for a balanced and selective approach. We recommend investors seek diversified exposure across semiconductors, software, and internet platforms, rather than concentrating risk in any single segment or individual stock."

Source : finance.yahoo

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Economic

Hours after President Donald Trump told a room full of Republican lawmakers that he will fire Federal Reserve Chair Jerome Powell, he denied plans to do that.

“We’re not planning on doing it,” he said. “It’s highly unlikely.”

Trump on Tuesday met with Republican lawmakers and asked them if they thought he would fire Powell. After receiving support, the president said he would follow through, according to a senior White House official.

“The President asked lawmakers how they felt about firing the Fed Chair. They expressed approval for firing him. The President indicated he likely will soon,” said the official, who spoke on the condition of anonymity to speak candidly on the issue.

Separately, the New York Times reported that Trump has gone so far as to draft a letter for firing Powell and showed it to lawmakers during that meeting.

A Fed official declined comment to CNBC on the report about the Trump meeting Tuesday, which came after Republicans blocked a procedural vote on crypto legislation that the president favors.

Trump and other White House figures have launched a multi-pronged attack on Powell to push the central bank to lower its key borrowing rate. Most recently, they have blasted Powell over renovations to the Fed’s Washington headquarters, raising suspicion that Trump could try to remove the Fed leader for cause.

A recent Supreme Court decision indicated that the president does not have the authority to remove Fed officials at will.

In a CNBC interview Wednesday, Rep. French Hill, the chair of the House Financial Services Committee, repeated that “I don’t see” Trump firing Powell. Treasury Secretary Scott Bessent also told Bloomberg News on Tuesday that he didn’t expect Trump to move in that direction.

However, Rep. Anna Paulina Luna, a Florida Republican who on Tuesday joined with other party members in blocking the crypto initiative, said on social media site X that a move against Powell is forthcoming.

“Hearing Jerome Powell is getting fired! From a very serious source,” she said, later adding, “I’m 99% sure firing is imminent.”

In prior statements on the matter, Powell has said his firing is “not permitted under the law.” No president ever has attempted to so in the past, though others have criticized the central bank leader.

Trump nominated Powell for the chair in November 2018 to succeed Janet Yellen, who went on to become Treasury secretary under former President Joe Biden after holding the Fed position for four years. The Senate confirmed Powell the following February, but has been the subject of frequent criticism from Trump both during the president’s first term and the second.

Source: cnbc

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Commodity

Gold and silver prices are up a bit in early U.S. trading Tuesday. At mid-week it’s a lackluster marketplace, which is not surprising for mid-summer. August gold was last up $9.40 at $3,346.10. September silver prices were last up $0.165 at $38.275.

Asian and European stocks were mixed overnight. U.S. stock indexes are pointed to mixed openings today in New York, amid quieter summertime trading.

The key outside markets today see the U.S. dollar index slightly down. Nymex crude oil futures prices are weaker and trading around $66.00 a barrel. The yield on the benchmark 10-year U.S. Treasury note is presently at 4.477%.

U.S. economic data due for release Wednesday includes the weekly MBA mortgage applications survey, the producer price index report, industrial production and capacity utilization, the Federal Reserve’s beige book and the weekly DOE liquid energy stocks report.

Mild price gains for gold, silver in quieter summertime trading_1

Technically, August gold futures bulls have the overall near-term technical advantage. Bulls’ next upside price objective is to produce a close above solid resistance at $3,400.00. Bears' next near-term downside price objective is pushing futures prices below solid technical support at the June low of $3,250.50. First resistance is seen at $3,375.00 and then at this week’s high of $3,389.30. First support is seen at this week’s low of $3,327.30 and then at $3,300.00. Wyckoff's Market Rating: 7.0

Mild price gains for gold, silver in quieter summertime trading_2

September silver futures bulls have the solid overall near-term technical advantage. Prices are in an uptrend on the daily bar chart. Silver bulls' next upside price objective is closing prices above solid technical resistance at $40.00. The next downside price objective for the bears is closing prices below solid support at $36.00. First resistance is seen at Tuesday’s high of $38.74 and then at $39.00. Next support is seen at Tuesday’s low of $37.895 and then at $37.50. Wyckoff's Market Rating: 7.5

Source:kitco

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Thomas

Central Bank

Economic

Short-maturity US Treasuries jumped and the dollar plunged after a White House official said President Donald Trump is likely to fire the chief of the Federal Reserve soon.

Yields on two-year notes, which are most sensitive to changes in Fed monetary policy, fell seven basis points to about 3.87% as traders bet that Trump would choose a more dovish successor to Chair Jerome Powell. Powell has signaled the need to monitor the impact of Trump’s tariffs on the economy before lowering interest rates further.

“US rates appear to be coming lower no matter what, the US curve will steepen and the dollar will continue weakening, especially vs those with central banks that will not follow the Fed,” said Alvaro Vivanco, head of strategy at TJM FX.

The yield gap between 5- and 30-year Treasuries rose to the highest since 2021 on the news. Meanwhile, the Bloomberg Dollar Spot Index sold off, falling the most since late June on an intraday basis. All G-10 currencies advanced, led by the yen, which rose more than 1% at one point before paring gains.

In Treasuries, the steepening move extended as traders priced in a greater chance that the Fed will cut rates as soon as September.