In an interview with Bloomberg Businessweek, Donald Trump made an interesting comment regarding his plans concerning the Fed. Back in February, Trump told Fox that he wouldn’t reappoint Jay Powell.
Now he says he’ll let Powell finish out his term. But, he adds a very telling codicil:
“I would let him serve it out,” Trump says, “especially if I thought he was doing the right thing.”
So what would Trump do if he didn’t think Powell was doing the right thing? Powell is already being pilloried for the rate cut which pretty much everyone agrees should occur in September.
“I think he’s political, I think he’s going to do something to probably help the Democrats, I think, if he lowers interest rates.”
Trump was certainly vocal during his own presidency. In September 2019, in just one example of many, Trump tweeted that the Federal Reserve and Jerome Powell have “no guts, no sense, no vision!” after the Fed lowered interest rates by a quarter point when CPI was 1.7% and rising.
Without delving into politics, it’s important to recognize that if elected Trump will hammer the Fed to lower interest rates and devalue the US dollar. It’s an approach which might earn him some votes, but it carries significant risks for the economy — particularly if he were to follow through on his promise to lower corporate taxes to 15% and revive his 2017 Tax Cuts and Jobs Act with its $4.6 trillion price tag.
We don’t like paying taxes any more than the next guy, but with a $35 trillion national debt, can we really afford a substantial increase to the deficit? And, devaluing the dollar while lowering interest rates and increasing tariffs is almost certain to increase inflation in the US, a net importer.
We don’t talk politics here at pebblewriter. We talk markets. And, the impact of some of these developments could be very significant.
* * *
Futures are up slightly this morning after tagging our ES 5573 target a second time.
The bounce and subsequent recovery…
…was made possible by VIX’s violent 36% plunge in mere seconds. 
We refer to such a plunge as a “shot across the bow” for its ability to remind the algos of the market’s ability to be “guided” higher by exogenous drivers: VIX, currencies, interest rates, etc.
continued for members...
While ES is paying close attention to the yellow 2.618 Fib extension…
…SPX’s 2.618 is way down at 5337 – a 200 point drop from current levels.
When we’re faced with such a discrepancy in downside support, we usually lean more on ES as it receives closer scrutiny by technically minded traders and algos. So, we’ll keep a very close eye on VIX. A push through 16.7 would mean more downside ahead for stocks.
On the currency front, EURUSD has probably gone as far as it can for now.
While USDJPY could still backtest its SMA200 at 151.90ish, 
…DXY is already backtesting its and, given the expectations of a cheaper dollar (lower interest rates and politics), will likely drop below 102 by election day. 
As always, oil/gas prices are weighing on inflation expectations and interest rates. They are having a hard time breaking down even a little, which along with tariff talk…
…is propping up interest rates. Remember, a cheaper dollar increases oil prices and ultimately, therefore, inflation and interest rates.
The 2Y and 10Y are behaving (so far) after their recent TL breakout. But, the 10Y’s gap back above the channel bottom is bearish.
continuing…