Trump’s War Against the Powell Fed has Taken Another Political Turn

Political

Central Bank

Summary:

As Powell testified Wednesday before the Senate Banking Committee, holding generally cordial exchanges with lawmakers.

Federal Reserve Chair Jerome Powell mostly breezed through two hearings on Capitol Hill this week but now heads into a much bigger challenge: a potential threat that President Donald Trump could undermine his authority by soon naming his pick to head the central bank next year.

As Powell testified Wednesday before the Senate Banking Committee, holding generally cordial exchanges with lawmakers, Trump was at the NATO summit in The Hague lobbing his latest attacks on a man he had nominated for the Fed job nearly eight years ago.

“I think he’s terrible,” Trump said when asked during a news conference about his intentions for the next Fed leader. Trump then called Powell a “very average mentally person,” adding he has “a low IQ for what he does” and is “a very political guy.”

“I think he is a very stupid person, actually,” Trump said.

While Trump’s name-calling of Powell isn’t particularly new, the words now could signal action

Potential candidates

In the wake of the intense criticism, Wall Street has been buzzing over the potential for a “shadow chair,” or someone Trump could install as a central bank gadfly until Powell’s term expires in May 2026.

The talk has impacted markets: Traders on Thursday accelerated bets on rate cuts this year, with three reductions now at about a 60% odds, compared to a strong likelihood of two just a few days ago, according to CME Group data. Treasury yields tumbled at the shorter end of the curve, which is where the Fed has its influence, falling much more than those at the long end. The dollar also was down sharply against its global counterparts.

Trump confirmed that he has a list of potential Powell successors down to “three or four people,” without naming the finalists.

The cadre of potential candidates has become familiar: Treasury Secretary Scott Bessent, National Economic Council Director Kevin Hassett, former Fed Governor Kevin Warsh, and as a dark horse in-house pick Christopher Waller, who is a Trump appointee serving as governor and as of late has been an advocate for lower interest rates.

In some circles, Bessent has been considered a front-runner, though sources familiar with Trump’s thinking say that is not necessarily the case. Bessent himself has said he’s not interested in the job, though that could change if Trump would ask him to take it.

A report in The Wall Street Journal Wednesday evening suggested that former World Bank President David Malpass also is in the running. The Journal report indicated that Trump is considering naming the successor sooner than expected in an attempt to influence interest rate policy.

White House officials did not respond to a request for comment beyond Trump’s remarks at the news conference.

An active Fed

There are several issues making Trump’s desire to name a chair now problematic. For one, there are no immediate open positions, though Governor Adriana Kugler’s term ends in January 2026. Powell’s term as governor itself doesn’t expire until 2028, though the chair term runs out next year.

“This plan probably isn’t constitutional and would politicize the Fed for a few months before stability is restored next May,” Greg Valliere, chief strategist at AGF Perspectives, observed Thursday. “But the damage to the Fed’s independence would be considerable if Trump becomes a monetary back-seat driver, second-guessing Fed policies this fall.”

The latest Trump-Powell tumult comes during a busy time for the central bank.

Over the past several days, the Fed has taken two significant steps aimed at banking: removing “reputational risk” as a criteria for bank exams, a seeming nod to Trump’s complaint over politically motivated de-banking at large institutions, and the relaxing of reserve capital rules for systemically important banks. The latter measure was pushed by Vice Chair for Supervision Michelle Bowman, also a Trump appointee but someone who is thought to be at best an outside hopeful for “shadow chair” finalist.

Nevertheless, Trump’s biggest gripe, namely the Powell-led Federal Open Market Committee’s refusal to lower interest rates, remains a sticking point.

Chicago Fed President Austan Goolsbee told CNBC in a Thursday interview that the political waves are not a factor in decision-making, nor would be the naming of a shadow chair.

“That would have no effect on the FOMC itself,” Goolsbee said. “Just look at the minutes and transcripts. You can see, word for word, what the rationale are in making the decisions, and they’re not about elections and they’re not about partisan politics.

Source: CNBC

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Economic

President Donald Trump stepped up attacks on his handpicked Federal Reserve chairman on Wednesday, claiming Jerome Powell has “low IQ” and suggested that he has narrowed down the list of potential replacements to three or four people.

“He’s an average mentally person…Low IQ for what he does,” Trump said of Powell during remarks at a press conference at the NATO summit in the Netherlands Wednesday. “I think he’s a very stupid person, actually.”

Trump has been berating Powell all year, arguing the Fed’s reluctance to slash interest rates is costing the federal government hundreds of billions of dollars in interest.

Trump nominated Powell for the powerful position in 2017. He’s one of the only major Trump nominees whom President Joe Biden kept in place. Biden renominated Powell for another four-year term that expires in May 2026.

Asked about whether he’s started interviewing a replacement for Powell, Trump said: “Yeah, I know within three or four people who I’m going to pick.”

Trump added that Powell’s term is up “pretty soon fortunately, because I think he’s terrible.”

Powell has argued it’s too early to cut interest rates because many economists anticipate Trump’s tariffs will eventually boost the inflation rate, which is lower today than when Trump took office.

During a hearing on Tuesday, Powell poured cold water on calls from his colleagues to cut rates as soon as next month, noting that most forecasters “expect a fairly substantial wave of price increases to come through to the consumer.”

Commerce Secretary Howard Lutnick echoed Trump’s attacks on the Fed chair on Wednesday. “Jerome Powell – your job is to help Americans not hurt them, so do your job and CUT our absurdly high interest rates at your next meeting,” Lutnick said in a post on X.

Powell has also faced some defections from his own ranks this week.

Fed Vice Chair for Supervision Michelle Bowman on Monday downplayed the potential impacts of Trump’s tariffs on prices and said the US central bank should swiftly lower rates to preserve the labor market’s health.

On Friday, Fed Governor Christopher Waller said tariffs will likely only result in a “one-off” increase in inflation. Both Bowman and Waller are Trump appointees.

On Monday during a moderated discussion in Milwaukee, Chicago Fed President Austan Goolsbee said the Fed could lower borrowing costs again “if we do not see inflation resulting from these tariff increases.”

Powell, on the other hand, has cautioned that tariffs could start causing prices to rise starting in the summer. And if that happens, cutting rates could reignite inflation. At its policy meeting earlier this month, the Fed kept its benchmark lending rate unchanged for the fourth consecutive time.

“If we make a mistake, people will pay the cost for a long time,” Powell said in his testimony Wednesday.

Source: cnn

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Forex

There is a risk on tone to markets on Thursday, bond yields are lower, stocks are up slightly and oil prices remain stable. Geopolitical fears are receding, and there are rising hopes for chunky rate cuts from the Federal Reserve in the coming months and years.

Shell not interested in BP

The main news in the UK is Shell’s firm rebuttal that it will make any offer for BP. News circulated last night that talks about a purchase were ongoing, however, Shell has put this to bed, for at least 6 months. Shell published a detailed statement denying the recent reports, which triggers section 2.8 of the Takeover Code. For now, any takeover of BP by Shell will be a 2026 story, and is unlikely to happen in 2025.

Interestingly, BP’s share price is higher on Thursday, while Shell’s share price is slightly lower. YTD, BP and Shell are both underperforming the FTSE 100, which is partly down to the weaker oil price. BP’s share price is still underperforming its global peers, and now that Shell is out of the running as a potential buyer, we do not see BP repairing its position in the coming weeks or months.

While the speculation about Shell’s purchase of BP will die down, there is some logic in the oil majors bonding together. The oil price could remain suppressed for some time, as there is ample supply in the market, for both this year and next, according to the IEA. This is a tricky period for the oil majors, and there could be strength in combining reserves.

Dollar drops as rate cut expectations surge

The dollar is in focus on Thursday, after reports suggested that Donald Trump is considering announcing his pick for Jerome Powell’s successor as Fed chair as early as this Autumn, even though Powell’s term as governor does not end until May 2026. This could undermine Powell’s final months as chair. The consensus is that Trump will pick a dovish chair, who is likely to cut interest rates. This triggered a decline in US bond yields, which has weighed on the dollar.

The dollar index fell to a new three-year low, and is extending declines on Thursday. Trying to call a bottom for the USD seems pointless now, since it is closely linked to fiscal and political developments. The Trump administration said that the Fed should pursue a ‘growth-orientated monetary policy’, which suggests that the White House wants rate cuts as soon as possible.

Is the Fed’s independence at risk?

The interest rate futures market has rushed to price in deeper rate cuts from the Federal Reserve in the aftermath of this report. There are now 2.5 cuts priced in for this year, with a further 2.5 cuts priced in for next year. By the end of 2026, when the new governor of the Fed will be ensconced in their new role, US interest rates are expected to be a mere 3%. This is a level that would no doubt please President Trump, but it may also lead to questions about the Fed’s independence.

If the new chair is announced in the coming weeks, then we could see a shadow Fed emerge, which could undermine Powell’s message of slow and steady rate cuts. The governor-elect could also impact market sentiment, and ultimately their statements could become more important than Fed meetings as we move into the second half of the year. So far, the front runners to replace Powell include Kevin Warsh, Kevin Hassett, Christopher Waller (who called for a rate cut in July), and even Treasury Secretary Scott Bessent.

Why falling yields, and fiscal concerns could weigh on the dollar

The bigger picture suggests that the US dollar is declining in the face of high bond yields, as the US fails to attract capital. However, things could start to shift for US bonds. There has been a large shift lower in yields in recent days, which is weighing heavily on the greenback. Bond yields in the US fell on Wednesday and yields across Europe are also lower. In the last week, the 2-year Treasury yield has fallen more than 18 bps, which is helping to topple the dollar.

The dollar is the second weakest currency in the G10 FX space so far this week. It has made large declines vs the pound, as UK yields are likely to remain higher than their US counterparts for the foreseeable.

Nvidia reaches a fresh record as US stocks are in vogue

US stock market futures are pointing to a higher open later today. Tech stocks are rising sharply, as lower yields boost their attractiveness. Nvidia rose 4% on Wednesday to a fresh record high. It is now the world’s most valuable company, after rallying more than 60% since the April low. Bitcoin is rising in line with US stocks and is also moving towards its record high. This is also supporting Coinbase, which is the top performer on the S&P 500 so far this week.

Source: xtb

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Owen Li

Central Bank

The White House said Donald Trump’s decision on a successor for Federal Reserve Chair Jerome Powell is not near, after the Wall Street Journal reported the president could make a pick as soon as the summer.

No decisions are imminent, although the president has the right to change his mind, a White House official said on Thursday. Trump has many good options to nominate as the next central bank chief, according to the official.

The dollar fell and US Treasuries rallied after the paper reported that Trump has considered naming Powell’s replacement by September or October, citing anonymous sources. One unnamed person said Trump’s ire toward Powell could prompt an even earlier choice this summer.

Earlier: Trump Says Three or Four People on List to Replace Fed’s Powell

Powell’s term as chair does not expire until May 2026, and choosing a replacement that early would be unusual.

Trump has repeatedly bashed the Fed chair over the bank’s position to hold interest rates steady, calling for cuts and arguing its policy is keeping US government borrowing costs high.

Trump said Wednesday that he has “three or four people” on his list of potential replacements for Powell. Earlier this month, the president said he was considering nominees and that they would come out “very soon.”

Recently, the president has intensified his personal criticisms of Powell. During a Wednesday press conference at the NATO summit, Trump called the bank chief “terrible” and an “average mentally person” with “low IQ.”

Source: Bloomberg Europe

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Adam

Stocks

Nvidia (NVDA) stock continued to tick higher Thursday, rising 1.1% in early trading after notching a record high above $154 the prior day.

The gains come amid bullish predictions for the AI chip market on Wall Street.

Loop Capital analyst Ananda Baruah on Wednesday raised his price target on Nvidia shares to $250, the highest of Wall Street analysts tracked by Yahoo Finance, implying that the AI chipmaker's market capitalization could soar to $6 trillion. Baruah expects the market for AI chips to grow to $2 trillion in 2028.

Baruah said that "we are entering the next 'Golden Wave' of Gen AI adoption and NVDA is at the front-end of another material leg of stronger than anticipated demand." He cited emerging demand for AI chips from governments, commitments from Big Tech "hyperscalers," and the availability of Nvidia's latest Blackwell AI chips.

"While it may seem fantastic that NVDA fundamentals can continue to amplify from current levels, we remind folks that NVDA remains essentially a monopoly for critical tech, and that it has pricing (and margin) power," he wrote.

Bank of America analyst Vivek Arya wrote in his own note to investors Wednesday that he forecasts demand for AI chips reaching a more modest but still impressive $650 billion by 2030, up from $201 billion in 2025. Arya said Nvidia is set to be a "key beneficiary" as it's "still far ahead" of new entrants in the sector.

In another bullish sign for Nvidia, Micron (MU), which supplies memory chips for Nvidia's GPUs in data centers, beat Wall Street's expectations for its third quarter earnings results Wednesday, with executives citing strength in its AI business amid robust AI data center growth during a call with analysts.

To be sure, there has been investor skepticism over whether Big Tech can continue its torrid pace of investment in AI, as companies are still working out how to monetize the technology. That skepticism was amplified when a new cost-effective AI model from Chinese firm DeepSeek caught the world’s attention in January. News of DeepSeek’s latest AI model in January sent Nvidia shares plummeting at the end of that month.

Before its high Wednesday, Nvidia last hit a record close of $149.43 on Jan. 6. Nvidia stock had struggled in the months following its record close in January with the emergence of DeepSeek and as President Trump embarked on his trade war, which included the enactment of a ban on sales of the company's chips to China.

Shares have seen a big upswing since the company announced trade deals in the Middle East and reported its first quarter earnings in late May, which showed revenue beating Wall Street's expectations and the company continuing to thrive despite Trump's export ban on its chips for China.

Source: finance.yahoo

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Stocks

Economic

At the NATO summit in The Hague, the alliance’s member states reached an agreement on a gradual increase in defense spending, with a target of 5%. This figure is to be broken down into 3.5% strictly for defense and 1.5% for other expenditures, including infrastructure development, research, and innovation. At this stage, only Spain is raising objections, diplomatically insisting on the 2% level—which, however, was met with a typical and incisive response from Donald Trump, who referred to the Spaniards as “stowaways.” Regardless, the target date for achieving this level is 2035, and it is certainly questionable whether all members will meet their commitments within the next decade. So we’ll take a look at companies with strong growth potential in the defense industry sector, which could benefit from increased arms expenditures.

V2X Inc – More Than 20% Growth Potential

V2X Inc (NYSE:VVX) is a defense-related company providing a wide range of services in areas such as radar systems, critical infrastructure defense, and multi-role aircraft. According to the fair value index, the company boasts more than 20% growth potential with a moderate financial condition.

Significantly, the company has consistently reported positive net income for the past three quarters—something that has not been the norm in recent years. The latest results showed earnings per share of $0.98, beating the consensus by 5.1%. If we get a bullish technical signal in the form of a breakout above $52 per share, this will be an interesting company to consider from a buyer’s perspective.

General Dynamics Corporation With an Impressive Fundamental Profile

Another company on the list is General Dynamics Corporation (NYSE:GD), which specializes in building military sea and land systems. The upside potential is estimated at just over 12%, amid a continued moderate uptrend since around mid-February. What stands out is the company’s fundamental profile, which shows a full range of positive indicators.

The company is also clearly attractive to dividend investors, as evidenced by its 47-year payout history and consistent dividend growth over the past decade. Since 2019, net income has remained stable, with a visible upward trend projected in 2024 and 2025.

Lockheed Martin Corporation Pending a Technical Signal

The last company on the list is Lockheed Martin Corporation (NYSE:LMT), a well-known American brand in the defense industry. As with the aforementioned competitors, the key positives include stable net profits and an upside potential of just under 14%. However, the technical chart remains important here, showing a prolonged consolidation since the beginning of the year, in the $420–490 per share range.

3 Stocks Set to Gain as NATO Allies Commit to Boost Defense Spending_1

If pressure on the upper boundary continues, we could see the formation of an ascending triangle pattern—a bullish chart formation—which could result in a breakout. In such a scenario, the minimum expectation would be an attempt to reach fair value slightly above $520 per share.

Source :investing

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Adam

Forex

Commodity

Having briefly traded in 4-month highs at 43,183, the Dow Jones Industrial Average is beginning to lose upside momentum as traders digest Federal Reserve (Fed) Chair Jerome Powell's remarks and look forward to US-Iran talks.

While Wednesday's low at 42,871 holds, immediate upside pressure remains in play with a rise above this week's 43,183 high possibly engaging the late December high at 43,374.

Were Wednesday's low at 42,871 to be slipped through, though, the 200-day simple moving average (SMA) at 42,551 may be revisited.

Further potential support sits at the 5 June low at 42,212 and Monday's 41,981 low. Then there is minor support around the late May low at 41,828 and the 15 May low at 41,778.

Critical support for the long-term uptrend remains to be seen at the 23 May low at 41,354, only a fall through which may lead to a much deeper correction taking place.

Dow, EUR/JPY rallies stall as US natural gas prices stabilise_1

EUR/JPY rally loses steam

EUR/JPY's swift advance has taken it to ¥169.71, to within inches of its ¥169.99 mid-July 2024 low before losing upside momentum. Nonetheless the cross is on track for its fifth consecutive week of gains.

A rise above the ¥169.71-to-¥169.99 resistance area would likely target the 3 June 2024 peak at ¥170.89.

Minor support below Tuesday's ¥167.91 low can be spotted at the mid-June ¥167.61 high.

While the next lower 19 June low at ¥166.04 holds, the medium-term uptrend is deemed to be intact.

Dow, EUR/JPY rallies stall as US natural gas prices stabilise_2

Natural gas futures stem their decline

The recent sharp advance and swift decline in US Natural gas futures prices amid the Israel-Iran conflict has taken these close to their late May-to-June lows at 295.7-to--294.4. These levels offer support with the 200-day simple moving average (SMA) at 292.4.

While the 295.7-to-292.4 support zone holds the 12 June high at 311.7 may be revisited. Further up the 5 May high at 316.0 may act as minor resistance ahead of the more significant late March low, May and early June highs at 321.4-to-327.5.