Markets generally ended the week lower as the prior week’s positive reaction to Fed Chair Jay Powell’s comments seemed to wane. The market’s initial interpretation of Powell’s comments was that he is open to a September rate cut. However, Powell continued to stress the Fed will be data dependent in its decision making and that monetary policy is not on a “preset course,” increasing the importance of upcoming employment and inflation data prior to the Fed’s mid-September meeting. Improved employment data coupled with signs of slowing inflation would diminish the odds of a September rate cut, whereas another weak employment report would likely increase the odds of a rate cut assuming inflation does not show rapid acceleration.
President Trump continued to ratchet up his pressure on the Fed by officially “firing” Fed Governor Lisa Cook, who in turn sued Trump saying he lacks the authority to do so. Conventional wisdom states investors prefer an independent Fed, free from political influence. Market reaction thus far has been relatively muted as the case is likely to be decided by the Supreme court which earlier this year suggested Fed members enjoy a greater degree of protection than that afforded to other government officials.
On Friday, the U.S. Court of Appeals for the Federal Circuit ruled Trump’s tariffs enacted under the International Emergency Economic Powers Act are illegal. However, assuming the case will be appealed to the Supreme Court, the Appeals Court stayed its ruling until October 14. The ruling creates fresh trade policy uncertainty which had waned in recent weeks following a spate of trade deals between the US and many of its largest trading partners.
