Trump Moves to Fire Fed Governor Cook in Unprecedented Action
Last week, Federal Reserve Chair Jerome Powell opened the door to cutting interest rates in September, as he warned of a “shifting balance of risks”. Keep reading to find out more about this and other important news.
Trump Escalates Fed Feud
On Monday evening, US President Donald Trump announced he was firing Federal Reserve governor Lisa Cook with immediate effect, stating there was “sufficient reason” to believe she may have made false statements on mortgage agreements.
In a statement, Cook said “President Trump purported to fire me ‘for cause’ when no cause exists under the law, and he has no authority to do so”. She went on to confirm that she “will not resign”.
The unprecedented move follows months of attacks by the president on Fed Chair Jerome Powell, who he has regularly criticised for not lowering interest rates quickly enough.
It also follows Trump’s decision to fire the head of the Bureau of Labor Statistics (BLS) at the beginning of the month, after weak jobs data that the president claimed was rigged.
In response, the US Dollar Index retreated on Tuesday morning and longer-dated US Treasuries also fell, pushing up yields.
Powell Opens Door to September Rate Cut
In a much anticipated speech at the Jackson Hole Symposium on Friday, Fed Chair Powell raised expectations of a rate cut in September.
Powell struck a more dovish tone as he declared that “with policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance”.
However, the Fed Chair warned of a “challenging situation” in which “risks to inflation are tilted to the upside, and risks to employment to the downside”.
Whilst he noted that the effects of tariffs “are now clearly visible”, he stated that a “reasonable base case is that the effects will be relatively short lived – a one-time shift in the price level”.
Nevertheless, he also stressed that monetary policy was “not on a preset course”, stating that policymakers would take decisions “based solely on their assessments of the data and its implications for the economic outlook and the balance of risks”.
Data Which Could Shape Fed's Decision
The Fed's rate-setting Federal Open Market Committee (FOMC) is due to announce its next decision on 17 September. Before then, three important economic announcements could shape its decision.
The first of which, July’s Personal Consumption Expenditures (PCE) index, will be reported on Friday.
Although market participants usually focus on the Consumer Price Index (CPI), the PCE is the Fed’s favoured measure for inflation. If the PCE is reported higher than expected, this could weaken the Fed's case for cutting rates.
Following July’s PCE announcement will be the August jobs and CPI reports, scheduled for 5th and 11th September, respectively. These releases will shed fresh light on the near-term risks posed to employment and inflation.
Earnings Season Winds Down
Second quarter earnings season is drawing to a close, with the vast majority of S&P 500 companies having already reported results.
Last week, Walmart reported quarterly earnings which were closely watched by investors for signs of how the US consumer was holding up.
In a mixed report, the retail giant beat revenue estimates, but fell short of expectations on earnings, in what was its first earnings miss since May 2022.
However, despite stating that costs were continuing to rise from higher tariffs, the retailer raised its full-year sales and earnings guidance.
Amongst the last companies yet to report is Nvidia. The world’s largest public company will release its eagerly anticipated quarterly earnings report after the final bell on Wednesday.
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