Equites were whipsawed on the rumor that the President floated the idea of firing FRB Chair Powell in a closed-door meeting with congressional Republicans. The President later denied that such occurred stating “No, we are not planning in doing anything,” when Trump was asked about if he wanted to fire Powell.
The rumor originated from a White House official, “speaking on the condition of anonymity” earlier Wednesday that “they” expected the President to move soon against the Fed chief.
Firing the FRB Chair would do nothing to alter interest rates. The Chairman does not set monetary policy but only states the consensus view of the 19 member FOMC committee, ten of which vote on a rotating basis.
Trump would have to fire the entire board, something that is lost upon most. At the conclusion of the June FOMC meeting, seven members believe the overnight rate should be left unchanged, two suggested one interest rate cut by the year’s end and ten have penciled in at least two cuts this year.
Firing the FOMC Chairman would have no upside and massively huge downside as it would then make the impression that the Fed has been entirely politicized [Note: All organizations are influenced by politics. To deny such a fact is ignorant at best]
Many believe that if the Fed Chair is fired it would be equivalent to the infamous Saturday Night Massacre of 1973 when President Nixon fired the Watergate Special Prosecutor following the refusal of the Attorney General to do the same. Most historians believe it was the beginning of the end of President Nixon.
Changning topics, the PPI was unchanged from upwardly revised May levels. Analysts were expecting a 0.2% increase. Producer prices rose the least since September. Ex food and energy, the core PPI was also unchanged, posting the smallest annual advance since late 2023.
The markets slightly increased the odds of an interest rate cut in September to around 54% and fully priced in an October reduction.
Writing the incredibly obvious, who is absorbing the tariffs? It is believed that companies and countries as well as others in the distribution process are absorbing the increased costs at the expense of margins. Margin compression is extremely dangerous in a concentrated market trading at very lofty levels with the S & P 500 trading over 22x forward earnings.
Speaking of concentration, according to Bloomberg three companies have contributed 50.1% of the benchmark gains in 2025. NVDA is 22.2% of the gain while MSFT and META are 18.8% and 9.1%, respectively. Wow!
To embellish the infamous 1993 quote of “Cats rule and dogs drool,” Momentum rules and everything else drools. What happens when the momentum changes, especially when NVDA is worth over $4.2 trillion or about 3.6% of global GDP?
Are we at a Minsky Moment or at the point a crisis occurs following a long period of stability that prevents investors from seeing risks that are in hindsight obvious? Stability breeds complacency that causes great unbalanced risks.
Commenting on yesterday’s market activity, the yield curve steepened as shorter dated Treasuries rallied on the PPI. Equities settled nominally higher as big bank earnings exceeded expectations.
What will happen today? Retail sales and import/export prices are released.
Last night the foreign markets were up. London was up 0.48%, Paris up 0.97% and Frankfurt up 0.87%. China was up 0.37%, Japan up 0.60% and Hang Seng down 0.08%.
Futures are flat. The 10-year is off 1/32 to yield 4.45%.
