Trump vs. The Fed: Supreme Court Case Tests Central Bank's Power

One year after returning to the White House on January 20, 2025, President Donald Trump has unleashed a policy blitz that is reshaping the American government and expanding the boundaries of executive power. As he enters his second year, Trump appears to be operating with fewer constraints than ever, pursuing an agenda that has deepened national divisions.

In a series of bold moves, Trump has demonstrated an increasingly aggressive approach. His administration recently ordered a federal crackdown on illegal immigration in Minnesota, which resulted in the shooting death of an unarmed female motorist by a federal agent. On the world stage, he oversaw a military raid in Venezuela to capture President Nicolas Maduro, revived a controversial plan to acquire Greenland, and threatened to bomb Iran.

When questioned about a criminal investigation into Federal Reserve Chairman Jerome Powell, Trump dismissed concerns about potential economic fallout. "I don't care," he told Reuters in an Oval Office interview. Earlier, he told The New York Times on January 7 that the only check on his authority to launch military strikes was "my own morality," underscoring a belief that his power is limited primarily by his own judgment rather than institutional restraint.

A Presidency Redefined by Executive Might

Trump came into his second term with a vow to remake the U.S. economy, federal bureaucracy, and immigration policy. He has made significant progress on that agenda, cementing his role as one of the most powerful presidents in modern American history.

Presidential historian Timothy Naftali argues that Trump has wielded power with fewer limitations in his second term than any president since Franklin Roosevelt. During his tenure from 1933 to 1945, Roosevelt commanded large congressional majorities that passed his agenda with little resistance, buoyed by public support and a fractured opposition.

Similarly, Trump has expanded executive authority through a stream of executive orders and emergency declarations, shifting decision-making from Congress to the White House. This push has been largely supported by a conservative-majority Supreme Court and a Republican-controlled Congress. Unlike his first term, his cabinet is now filled exclusively with loyalists.

White House spokeswoman Anna Kelly stated that while diplomacy is Trump's first instinct, he keeps all options open. She confirmed he ordered the raid on Maduro and the bombing of three Iranian nuclear facilities last year only "after both failed to negotiate in a serious way."

Figure 1: President Trump's second term has been defined by a rapid series of executive actions aimed at reshaping federal policy.

A Sweeping Policy Overhaul

In his first year back in office, Trump has implemented sweeping changes across the government, including:

• Cutting the size of the federal civilian workforce.

• Dismantling and closing entire government agencies.

• Slashing humanitarian aid to foreign nations.

• Ordering sweeping immigration raids and deportations.

• Deploying National Guard troops to Democratic-run cities.

• Imposing tariffs that have triggered trade wars.

• Passing a massive tax-and-spending-cut bill.

• Prosecuting political enemies and attacking universities, law firms, and media outlets.

• Canceling or restricting access to certain vaccines.

Despite promising to end the war in Ukraine on his first day in office, Trump has made little progress on a peace deal, even as he claims to have ended eight wars—a statement disputed by the ongoing conflicts in those regions.

Economic Headwinds and Political Risks

Like all second-term presidents, Trump faces the inevitable decline of his political power. He remains a deeply unpopular figure, with a recent Reuters/Ipsos poll placing his approval rating at 41%, while 58% of U.S. adults disapprove of his job performance. While low for a president, he retains substantial backing from his core supporters.

The primary issue for voters ahead of the November congressional elections is the high cost of living. When asked about high prices, Trump repeated his claim that the economy was the "strongest" in history, despite data showing stubbornly high inflation. In recent weeks, he has complicated his own messaging by calling the issue of affordability a Democratic "hoax."

This difficulty in addressing voters' economic struggles could create challenges for his party. Democratic strategist Alex Floyd warned that "Trump's total disregard for the rule of law or basic checks and balances has made Americans less safe," adding that voters could punish Republicans for what he called "lawless behavior."

Midterm Elections Loom Large

Trump himself has acknowledged the political danger. In his interview with Reuters, he conceded that Republicans could lose control of Congress in the November elections, noting that history rarely favors the president's party in midterms.

He has urged Republican lawmakers to fight to retain their majority, warning that a Democrat-controlled House of Representatives would impeach him for a third time. To counter the negative sentiment, Trump's aides say he plans to travel frequently to promote his economic agenda. However, his recent speeches on the economy have often been unfocused, a lack of message discipline that alarms some Republican strategists as the elections draw closer.

President Donald Trump is scheduled to meet with global business leaders this Wednesday at the World Economic Forum (WEF) in Davos, Switzerland. Sources familiar with the plans indicate that CEOs from sectors including financial services, cryptocurrency, and consulting have been invited to a reception following Trump's formal address.

The White House reportedly issued the invitations for the event, described in one CEO's schedule simply as "a reception in honour of President Donald J Trump." The meeting is expected to include a global contingent of corporate leaders, not just those from the United States, though the specific agenda remains unclear.

US Delegation and Geopolitical Backdrop

Trump is set to arrive in the Swiss resort on Wednesday to deliver a special address to the forum. He will be accompanied by several high-ranking U.S. officials, including Treasury Secretary Scott Bessent, who is slated to hold a press briefing on Monday.

The formal agenda of the WEF, which will host over 3,000 delegates from more than 130 countries, has been significantly impacted by recent U.S. policy moves. This year's gathering includes 64 heads of state and government, with many focused on shifts in U.S. policy under the Trump administration.

Greenland and Trade Threats Dominate Discussions

Recent dramatic policy statements from President Trump, including his demand that the United States purchase Greenland, are casting a shadow over the event.

These tensions have already had a direct impact on sideline meetings. According to diplomatic sources, national security advisers from several countries are meeting on Monday, and the topic of Greenland has been added to their agenda. A European diplomat confirmed this was a direct result of Trump's threat on Saturday to impose additional tariffs on eight European countries.

The threat of new tariffs, linked to the U.S. being allowed to buy Greenland, caused European stock markets to fall on Monday.

Adding another layer of international intrigue, Vladimir Putin's special envoy, Kirill Dmitriev, is also traveling to Davos. Two sources confirmed that Dmitriev plans to hold meetings with members of the U.S. delegation during the forum.

Gold and silver prices have climbed to new records, driven by a surge in investor demand for safe-haven assets as geopolitical and economic uncertainty intensifies. This rally follows a series of market-shaking events that have pushed investors toward precious metals.

On Monday, U.S. gold futures for February delivery increased by 1.71% to settle at $4,674.20 per ounce, after hitting a new high last week. Spot gold also saw gains, rising 1.6% to $4,668.14.

Silver mirrored this upward trend. U.S. silver futures for March delivery reached a record $93.035 per ounce and were last trading 5.06% higher at $93.02. The spot price for silver was up 3.55% at $93.16 per ounce.

Tariffs and Trade Disputes Rattle Markets

A key catalyst for the market anxiety is President Donald Trump's announcement of new tariffs on goods from eight European countries. The administration has tied these tariffs to its demand for "the Complete and Total purchase of Greenland."

The proposed tariffs are set to begin at 10% on February 1 and could increase to 25% by June 1 if a deal is not reached. The threat has directly impacted European markets, with reports indicating that officials are considering retaliatory tariffs and other economic countermeasures.

In response, European and Asia-Pacific stock markets mostly declined on Monday. Shares of major European automakers and luxury goods companies fell sharply, with the Stoxx Europe 600 Automobiles & Parts Index dropping 2.2% and the Stoxx Europe Luxury 10 index down 2.9% in early trading.

A Broad Landscape of Geopolitical Risk

The Greenland tariff dispute is just one of several factors contributing to the current risk-averse climate. Investors are also monitoring a range of other global flashpoints, including:

• Venezuela: The recent U.S. capture of the Venezuelan president and subsequent control of the nation's oil industry.

• Iran: Lingering tensions after President Trump suggested a military strike was imminent before backing away from the threat last week.

• U.S. Policy Uncertainty: A Justice Department criminal investigation into Federal Reserve Chair Jerome Powell is also unsettling markets, following sustained pressure from the president to lower interest rates.

• Ongoing Conflicts: The protracted conflict in Ukraine and the slow progress toward a resolution in Gaza continue to add to global instability.

Analyst Outlook: Fundamentals Support Gold's Rally

According to George Cheveley, a natural resources portfolio manager at Ninety One, gold's powerful rally is grounded in solid fundamentals that remain firmly in place. In the asset manager's 2026 sectoral outlook, Cheveley noted that falling real interest rates and continued reserve diversification by central banks provide strong support for gold prices to either consolidate or move higher.

The report also highlighted that at current prices, profit margins for gold producers are expected to be four to five times higher than they were in 2024.

In contrast to precious metals, other base metals are seeing gains driven more by long-term structural trends than by immediate geopolitical fears. Copper, for instance, is considered to have an "attractive" risk-reward profile due to strong demand from the energy transition and data center infrastructure. U.S. copper futures for March were last trading 0.54% higher at $5.8625 per ounce.

The Kremlin confirmed on Monday that Russian President Vladimir Putin has been invited to join the "Board of Peace," a U.S.-led council created by President Donald Trump to address the Gaza conflict.

Moscow is now reviewing the proposal, which aims to bring international leaders together to maintain the ceasefire between Israel and Hamas and manage the reconstruction of Gaza.

Figure 1: U.S. President Donald Trump and Russian President Vladimir Putin are the central figures in a new diplomatic proposal concerning the Gaza peace process.

Kremlin Confirms Offer, Seeks Clarification

Kremlin Spokesman Dmitry Peskov announced that the offer was received through diplomatic channels and is under careful consideration.

"President Putin has indeed received an offer... to join this Board of Peace. We are currently studying all the details of this proposal," Peskov told the Russian state news agency TASS. He added, "We hope to contact the U.S. side to clarify all the details."

The invitation to Putin is particularly noteworthy given Russia's ongoing war against Ukraine, a conflict approaching its four-year mark that has resulted in hundreds of thousands of casualties.

A Global Council With a High Price Tag

The Trump administration has extended invitations to a number of other world leaders. According to a Bloomberg report, Canadian Prime Minister Mark Carney and Argentine President Javier Milei are among those invited.

AP News reported that Hungary, India, Jordan, Greece, Cyprus, and Pakistan have also confirmed receiving invitations.

However, membership may come at a steep cost. Citing a draft charter, Bloomberg noted that the Trump administration reportedly wants nations to pay $1 billion for a permanent position on the board.

Israel Voices Opposition to Board's Structure

The initiative is already facing pushback from key regional players. Israel has expressed its dissatisfaction with the board's formation, particularly its leadership structure.

On Friday, Prime Minister Benjamin Netanyahu's office released a statement clarifying its position: "The announcement regarding the composition of the Gaza Executive Board, which is subordinate to the Board of Peace, was not coordinated with Israel and runs contrary to its policy."

The "founding Executive Board" announced by the U.S. on Saturday includes former U.K. Prime Minister Tony Blair, Trump's son-in-law Jared Kushner, and U.S. Secretary of State Marco Rubio, among others.

CNBC has contacted the White House for confirmation regarding Putin's invitation.

Japanese Prime Minister Sanae Takaichi has called a snap general election for February 8, centering her campaign on a bold promise to suspend the country's 8% consumption tax on food for two years. The proposal aims to tackle the rising cost of living but mirrors policies from her rivals and raises serious questions about Japan's already strained public finances.

Cutting the consumption tax, a move also advocated by several opposition parties, would carve a significant hole in government revenue. This comes as concerns over Japan's fiscal stability are already pushing government bond yields to their highest levels in decades.

Currently, Japan operates a dual-rate system, levying an 8% tax on food and a 10% tax on other goods and services to help fund the escalating social welfare costs of its rapidly aging population.

Election Gamble Centers on Suspending 8% Food Tax

At a press conference, Takaichi argued that a two-year exemption on the 8% food levy would provide direct relief to households struggling with inflation. She insisted the government would not issue new debt to cover the shortfall, suggesting funds could be found by reviewing existing subsidies.

"We will overhaul past economic and fiscal policy," Takaichi stated. "My administration will put an end to an excessively tight fiscal policy and a lack of investment for the future."

Bond Market Reacts as Yields Hit 27-Year High

Investors immediately reacted to the growing likelihood of a tax cut and Takaichi's commitment to expansionary fiscal policy. On Monday, the yield on the 10-year Japanese government bond surged to 2.275%, a 27-year high.

The move has drawn skepticism from economists who worry about its potential to backfire.

"I can't see why Japan needs a consumption tax cut after compiling a significant stimulus package to counter rising inflation," said Keiji Kanda, a senior economist at the Daiwa Institute of Research. "I'm worried these steps could accelerate inflation and lead to further rises in bond yields."

Opposition Parties Echo Calls for Tax Relief

Takaichi's proposal enters a political arena where tax cuts have become a common theme. Mindful of public frustration over inflation, opposition parties have also called for the consumption tax to be reduced or eliminated.

A new political party, formed last week from a merger of two major opposition groups, has called for the 8% tax on food to be abolished permanently. In its campaign platform, the party suggested creating a new sovereign wealth fund to generate the necessary revenue. Other groups, including the Democratic Party for the People, have also demanded that the consumption tax be lowered.

The Fiscal Tightrope: Weighing Revenue Loss vs. Voter Appeal

The push for tax cuts comes as inflation has remained above the Bank of Japan's 2% target for nearly four years, largely driven by stubbornly high food prices.

Historically, Takaichi's ruling Liberal Democratic Party (LDP) has resisted calls for consumption tax cuts, arguing that they would undermine market confidence in Japan's commitment to fiscal discipline.

The financial stakes are high. According to government data, scrapping the 8% food tax would cost an estimated 5 trillion yen ($31.71 billion) in annual revenue—an amount roughly equivalent to Japan's entire yearly budget for education.

Analysts warn that a permanent cut would put immense pressure on Japan's finances and heighten the risk of a bond selloff. These concerns are amplified by the fact that Takaichi's government has already compiled a record $783 billion budget for the next fiscal year, in addition to a major stimulus package designed to ease cost-of-living pressures.

($1 = 157.6900 yen)