Trump Confident in Fed Rate Cut, Sets Easing as Litmus Test

DOJ Probe Halts Nomination of New Fed Chair

A criminal investigation launched by the Trump administration into Federal Reserve Chair Jerome Powell has stalled the confirmation of his successor, creating a high-stakes standoff in Washington. The probe now threatens to derail President Donald Trump's pick to lead the central bank, former Fed Governor Kevin Warsh.

The conflict escalated after Powell disclosed that the Department of Justice had served the Fed with subpoenas. The investigation centers on statements Powell made to the Senate Banking Committee in June regarding renovations at the Fed's building, which the White House had publicly criticized for overspending.

Powell has framed the probe as an intimidation tactic in the administration's broader push for the Fed to cut interest rates. The move drew sharp criticism from Democrats and, more significantly, from Republican Senator Thom Tillis of the Senate Banking Committee. Tillis labeled the investigation as political interference and pledged to block any Fed nominee as long as it continues.

This opposition is critical. Fed nominations must clear the Senate Banking Committee with a majority vote. With Tillis refusing to support a nominee and Democrats united against the proceedings, any nomination like Warsh's would face a deadlock in the committee, preventing it from reaching the full Senate for a final vote.

Scott Enters Fray: Incompetence Isn't a Crime

Breaking weeks of tension, Republican Senator Tim Scott, who chairs the Senate Banking Committee, has directly pushed back against the investigation. On Wednesday, Scott stated he does not believe Jerome Powell broke the law during his congressional testimony last summer.

In an interview with Fox Business Network, Scott clarified that it was he who had questioned Powell about the building renovations. "I do not believe that he committed a crime during the hearing," Scott said.

He offered a blunt assessment of Powell's performance but distinguished it from criminal wrongdoing. Scott said he would tell any prosecutor that he found Powell "to be inept at doing his job, but ineptness or being incompetent is not a criminal act."

Scott expressed optimism about resolving the impasse, stating he has had "productive conversations" with Tillis and believes a solution can be found to move Warsh's nomination forward with unified Republican support on the committee.

Tillis Digs In, Calling Investigation 'Vindictive'

Despite Scott's confidence, Senator Tillis has shown no signs of backing down. Speaking on CNBC, he described the DOJ probe as a "vindictive" act. He argued it appeared to be "an attempt to try and force somebody out of the Fed Board because you disagree with their policies."

Tillis's firm stance has effectively frozen any progress on confirming Warsh, who is generally popular among Republicans and shares Trump's view that interest rates should be lower.

Powell's Next Move Could Complicate Trump's Plans

The ongoing probe has introduced another layer of complexity: the possibility that Powell may choose to remain at the Fed even after his term as chair ends in May. While most Fed chairs depart the central bank entirely, Powell's term as a Fed governor does not expire until 2028, and he has not confirmed his plans.

Tillis highlighted this "perverse consequence," suggesting Powell might stay on principle. "I know how I would react to this: I'd be there for the remaining two years because I don't want to reward bad behavior," he said.

If Powell stays, it would deny Trump an open seat on the Fed Board to fill with another advocate for rate cuts. It would also create a unique dynamic where an influential former chair remains at the policy-setting table, potentially complicating the leadership of his successor.

GOP Divided on Strategy as Confirmation Battle Looms

The situation has revealed a split among Senate Banking Committee Republicans on how to handle the stalemate. Senator Kevin Cramer described Tillis's opposition to Warsh's nomination as a "not a winning strategy" and expressed his hope that Powell would "exit gracefully."

However, even Cramer voiced his belief that the Fed chair does not belong in court. "I don't think that he belongs in a federal courtroom or a federal penitentiary," he stated, signaling a broader Republican unease with the criminal probe itself, even if they disagree on the best political response.

Japan’s three largest commercial banks are on track for a third consecutive year of record-breaking full-year profits, driven by a surge in lending income from higher domestic interest rates.

Mitsubishi UFJ Financial Group (MUFG), Sumitomo Mitsui Financial Group (SMFG), and Mizuho Financial Group collectively generated a record 4.22 trillion yen ($26.9 billion) in net profit for the April-December 2025 period, a 13% increase from the previous year. All three have maintained their earnings forecasts for the full fiscal year.

The banking giants are projected to achieve a total net profit of 4.73 trillion yen for the year ending in March. This would represent 9% of the total net profit from all companies listed on the Tokyo Stock Exchange's Prime market, an increase of 1.6 percentage points from the prior year.

MUFG reported a 4% year-on-year rise in its consolidated net profit to 1.81 trillion yen for the nine-month period, marking its third straight record for that timeframe. The bank cited higher interest rates boosting deposit and loan revenue, growing fee income, and strong performance from its U.S. partner Morgan Stanley.

SMFG and Mizuho also delivered record profits. When including Sumitomo Mitsui Trust Group and Resona Holdings, Japan's five largest banks saw their combined net profits climb 14% to 4.71 trillion yen, setting a new high for the third year in a row.

Figure 1: This chart illustrates the combined net profits for Japan's five largest banks from April to December for the years 2011 through 2025, highlighting a dramatic increase in earnings after 2020.

Rising Interest Rates Fuel Profit Surge

The primary catalyst for this performance has been the Bank of Japan's interest rate hikes. The BOJ's most recent move in December 2025 raised the policy rate by 25 basis points to 0.75%. This series of rate increases, which began with the end of the negative interest rate policy in March 2024, is expected to boost the megabanks' combined net interest income by an estimated 700 billion yen for the full year ending March 2026.

Higher market rates have successfully widened the banks' interest spreads—the difference between what they charge for loans and what they pay on deposits. For the April-December 2025 period, the average interest spread at the megabanks reached 1.04 percentage points, the highest level in 11 years. As a result, their combined net interest income from lending and other sources grew 17% to a new high of 3.81 trillion yen.

Strong Corporate Demand Boosts Lending and Fees

Robust demand for capital from the corporate sector provided another significant tailwind. As of the end of December 2025, the total loan balance across the three megabanks had increased by 3% from the previous year. This growth was driven by strong demand for financing related to mergers and acquisitions as well as real estate projects.

This activity also translated into higher fee income. Combined profits from fees and commissions, including loan origination and M&A advisory services, rose 9% year-on-year to a record 1.6 trillion yen.

Managing the Risks of a High-Rate Environment

While rising interest rates are beneficial for lending profits, they create headwinds for bond portfolios by decreasing their market value. By the end of December, the megabanks held a combined 748.6 billion yen in unrealized losses on their domestic bond holdings, a 33% increase over just three months.

However, the impact on earnings is expected to be limited. The banks proactively managed this risk by shortening the maturities of their securities. Furthermore, their unrealized gains on stock holdings provided a substantial cushion, rising 11% in three months to approximately 8 trillion yen. Overall, their combined securities portfolios held unrealized gains of around 8.5 trillion yen.

Future Challenges: Borrower Health and Deposit Growth

Looking ahead, the banks face several challenges. Although the non-performing loan ratio remains low across all three institutions, a key focus will be the impact of a higher interest burden on borrowers.

Attracting enough deposits to fund lending growth is another critical task. The combined domestic deposit balance for the three banks grew by only 0.6% year-on-year as of December 2025. Corporate clients are increasingly moving funds into financial products with higher yields. In response, banks are expected to enhance their efforts to attract both retail and corporate deposits by improving digital services and raising interest rates on fixed-term accounts.

Despite these potential hurdles, all three megabanks have maintained their full-year earnings forecasts for the year ending March 2026. Having already achieved roughly 90% of their profit targets by December, they appear confident but have factored in allowances for potential market uncertainty and geopolitical risks.

Donald Trump's return to the presidency came with a familiar promise: to finally curb China's economic ascent. Yet his first year in office has produced the opposite outcome, handing Chinese President Xi Jinping a series of strategic advantages. The global landscape is now more receptive to Chinese exports, more inclined to hedge against Washington's volatility, and increasingly skeptical of America's reliability as an ally.

Allies Hedging Bets Against US Unpredictability

President Trump's unpredictable and often combative diplomatic style has given President Xi more room to maneuver on the world stage. Instead of falling in line with Washington, key US allies and so-called middle powers are hedging their bets.

Leaders from Canada to Europe, though frustrated by a flood of Chinese goods, have stopped short of erecting significant new trade barriers. According to Bloomberg Executive Editor Dan Ten Kate, they are actively courting Beijing as a form of insurance against Trump's erratic tariff threats and aggressive military posture. In a twist of irony, Ten Kate notes that economic tools originally designed to counter Chinese coercion are now more likely to be directed at the United States itself.

China's Export-Driven Economy Remains Unchanged

Despite Trump's intentions, Beijing has not been forced to alter its state-driven, export-heavy economic model. In fact, China's reliance on foreign demand has only grown stronger. The country posted a record trade surplus last year, with exports rising to their highest share of the economy since the global financial crisis.

While nations from Ottawa to Paris express frustration over the influx of Chinese products—from electric vehicles to industrial equipment—this has not translated into meaningful action. Washington's inconsistent foreign policy has left other countries hesitant to join a united front against China, allowing Beijing to continue its economic strategy without major opposition.

Beijing's Strategic Limits and Endgame

However, China's current strategic advantage has clear limits. Richard McGregor, a Senior Fellow at the Lowy Institute, points out that Beijing is in no position to replace the United States as the world's primary market for finished goods.

President Xi's ambitions are constrained by significant internal challenges, including:

• Ongoing territorial disputes

• A rapidly aging population

• An economic structure geared toward self-reliance rather than consumption

For now, Beijing's primary objective is simple: achieve stability in its relationship with Trump. With high-level summits planned and Washington's restrictions on trade and technology under review, China's immediate goal is to keep the US president engaged. This strategy is designed to buy crucial time to manage domestic issues while securing more breathing room on the international stage.

Mexico's national oil company, Pemex, has affirmed its commitment to continue supplying oil to Cuba, defying growing pressure from the administration of U.S. President Donald Trump to sever ties with the island nation.

Pemex CEO Victor Rodriguez Padilla confirmed that the company has a contract to deliver refined fuel to Cuba running from 2023 and intends to honor it. According to Rodriguez, Pemex will maintain oil shipments as long as there is available crude.

Mexico's Official Stance on Shipments

The announcement follows recent statements from Mexican President Claudia Sheinbaum, who last week acknowledged a temporary suspension of oil exports to Cuba. However, she attributed the pause to general supply fluctuations rather than political pressure from Washington.

"Pemex makes decisions in the contractual relationship it has with Cuba," Sheinbaum stated, emphasizing Mexico's autonomy. "Suspending is a sovereign decision and is taken when necessary."

Escalating Pressure from Washington

The situation has intensified following an executive order signed by President Trump threatening punitive tariffs against any nation, including Mexico, that supplies oil to Cuba.

On Monday, Trump directly addressed the issue, telling reporters, "Mexico is going to cease sending them oil," and referred to Cuba as a "failed nation."

Mexico's Role as a Key Energy Supplier

Following the collapse of Nicolas Maduro's government in Venezuela, Mexico has emerged as a crucial energy lifeline for Cuba, which is grappling with a severe energy crisis.

Throughout 2024 and early 2025, Pemex exported between 17,000 and 20,000 barrels per day (bpd) of crude and refined products to the country. While the Mexican government has often framed these shipments as humanitarian aid, their value exceeded $1 billion by late 2025. A significant portion of these deliveries was managed through the subsidiary Gasolinas Bienestar.

Financial Scrutiny and Debt Concerns

The terms of these oil shipments have drawn scrutiny, particularly due to their subsidized nature and their effect on Pemex's own financial stability. The company has been supplying Cuba on what appear to be credit or service-exchange terms, even as it faces high debt levels with its own suppliers.

While officially logged as accounts receivable, these transactions are widely seen as aid, carrying a substantial risk of becoming unpayable and adding to Pemex's financial strain.

U.S. Treasury Secretary Scott Bessent has confirmed the government will not intervene to support Bitcoin in a market downturn, but it will continue to hold the vast amount of BTC acquired through asset seizures.

During a congressional hearing on Wednesday, Bessent outlined the Treasury's official stance, drawing a clear line against using public or private financial mechanisms to prop up cryptocurrency prices.

Figure 1: U.S. Treasury Secretary Scott Bessent testifies before Congress, clarifying the government's position on its Bitcoin holdings.

Treasury Secretary Rejects Market Intervention

The clarification came in response to pointed questions from California Congressman Brad Sherman, a known critic of the digital asset industry. Sherman asked if the Treasury or the Federal Open Market Committee had the authority to "bail out Bitcoin."

He further pressed Bessent on whether he would instruct private banks to acquire more Bitcoin or other cryptocurrencies, like "Trump Coin," by altering their reserve requirements.

Bessent’s response was unequivocal. "I am Secretary of the Treasury. I do not have the authority to do that," he stated. "And as chair of the Financial Stability Oversight Council (FSOC), I do not have that authority."

During the testimony, Bessent also highlighted the massive appreciation of the government's seized crypto assets. He noted that an initial $500 million worth of confiscated Bitcoin had surged in value to over $15 billion while in U.S. custody.

The Bitcoin Strategic Reserve: A Limited Mandate

Bessent's comments provide the latest update on the U.S. Bitcoin strategic reserve, a program established by an executive order from President Donald Trump in March 2025.

The initiative has faced criticism from some within the Bitcoin community, who argue its scope is too limited and does not go far enough to position the U.S. as a leader in digital assets.

The core constraint of the executive order is how the U.S. can add to its Bitcoin stockpile. The order stipulates that the strategic reserve can only grow through two channels:

• Asset forfeiture cases

• Budget-neutral strategies

This framework prevents the government from conducting open-market operations to purchase BTC, a move many crypto proponents had hoped for.

Figure 2: A social media post from Secretary Bessent in August 2025 outlines the Treasury's exploration of budget-neutral strategies for acquiring more Bitcoin for the national reserve.

How the US Can Still Acquire More Bitcoin

The concept of "budget-neutral" acquisition means the government can obtain more Bitcoin without adding new expenses to the federal budget. This could involve converting other existing reserve assets, such as petroleum or precious metals, directly into Bitcoin.

In August 2025, Bessent signaled that the Treasury was actively exploring these methods, backtracking on earlier comments.

According to Bitcoin advocate Samson Mow, direct government buying of BTC would create significant demand, likely driving up prices. He argues such a move could also serve as a powerful signal, encouraging other nations to establish their own strategic Bitcoin reserves. However, under the current policy, the U.S. will rely solely on seizures and asset conversions to build its holdings.

Supreme Court Challenge Looms for Tariff Regime

Former U.S. Trade Representative Robert Lighthizer predicts that the Supreme Court will likely overturn at least some of President Donald Trump's broad tariff policies. However, he emphasized that the administration is prepared to use other methods to keep its trade agenda on track.

Speaking at the Argus Americas Crude Summit in Houston, Texas, Lighthizer, who was a key architect of the White House's tariff strategy, stated that a court ruling against the current measures would not spell the end of the policy.

"My guess is that there'll be, to some extent, an overruling of what he did," Lighthizer said, adding that a decision is expected in the coming weeks.

Alternative Tools to Uphold Tariff Policy

The Trump administration has primarily used the International Emergency Economic Powers Act (IEEPA) of 1977 to impose tariffs on numerous global trading partners. Lighthizer acknowledged that continuing under this law is the preferred path.

"It's clearly easier and better if you can do it under IEEPA," he noted. "But if he can't, I think he'll have the same policy."

According to Lighthizer, if the Supreme Court restricts the use of IEEPA, the administration has other tools available to implement similar tariffs, even if the process becomes "a little more complicated."

Focus Shifts to USMCA Renewal with Canada and Mexico

Lighthizer also commented on the upcoming renewal of the U.S.-Mexico-Canada Agreement (USMCA), which he helped negotiate in 2020. He indicated that changes are necessary for the trade deal later this year.

He anticipates "some tweaks" in the agreement with Canada, particularly concerning agriculture. For Mexico, he expects more significant adjustments aimed at addressing "this issue of China's influence in Mexico."

Defending the Economic Impact of Tariffs

While direct energy imports have mostly avoided Trump's tariffs, the oil industry has voiced concerns that tariffs on steel imports have driven up drilling costs. This on-again, off-again tariff uncertainty has also created economic instability, making long-term planning difficult for energy companies.

Despite these concerns, Lighthizer insisted that Trump holds a "very favorable attitude" toward the energy sector. He argued that while tariffs may have increased steel costs, the long-term economic benefits from rebalancing trade deficits would be substantial. "The payoff will be pretty big," he said.

Lighthizer concluded by dismissing arguments that the tariffs contribute to inflation, labeling the policy a "great success." Acknowledging critiques of its implementation, he said, "You can say they could have done it in a less chaotic way. Maybe that's true, maybe it's not true."