It’s no surprise that the FOMC is standing pat on interest rates. This was widely expected. It was interesting, however, to hear the mild-mannered Powell, when asked about his future at the Fed, stand his ground. Trump has been attacking him for months, the latest effort being a Justice Department investigation over the renovation of the Fed’s headquarters. Powell has publicly stated the obvious, that the investigation is just another of Trump’s efforts to strong-arm Powell into cutting interest rates.
Lawmakers from both parties have said they would block Trump’s new Fed Chair from being confirmed until the investigation is closed. Yesterday, Powell concurred in no uncertain terms:
“I have no intention of leaving the board until the investigation is well and truly over, with transparency and finality.”
So if Trump wants Kevin Warsh confirmed, he’d best end the investigation that a federal judge recently found was motivated by political animus. The finding angered Trump so much that he refused to drop the investigation, even if it means Warsh won’t be seated (and Trump won’t get to direct monetary policy) any time soon.
Powell went on to explain that he hasn’t made up his mind whether to continue as a Fed governor after his chairmanship ends, stating that he would decide “based on what I think is best for our institution and the people we serve.” In other words, he could remain a thorn in Trump’s side for most of Trump’s presidency.
Needless to say, this would be a net positive for the economy. Warsh has likely pledged to Trump that he’ll cut interest rates after confirmed, even though Trump’s trade wars and actual wars have sent inflation soaring. A rate cut in the midst of high inflation is the last thing the economy needs.
All the major indices fell on the day, with SPX coming within 6 points of our SMA200 target.
With futures currently off 25 points, SPX should have no trouble testing the key support, currently at 6615.7. A bounce into the quarter end over the next 9 sessions wouldn’t surprise anyone, with the SMA50 and TL at about 6869 a key level of resistance.
WTI has been hammered every time it approaches 100 and VIX remains under control – though Brent hit 119 earlier after Israel bombed an Iranian gas field and Iran replied by attacking the world’s biggest liquefied-natural-gas facility in Qatar.
The bigger risk to the markets is Trump’s seeming inability to refrain from committing unforced errors – the greatest, of course, being tearing up the JCPOA years ago (because it was negotiated by Obama) and now starting an unnecessary war that no major ally other than Israel supports.
Stay tuned.