Old Powell dropped a bombshell at last week's press conference. On the surface, it was about the interest rate meeting, but it was really aimed at Trump.
He didn't lower interest rates, kept them steady, and said: there are no major problems with the economy, so don’t expect a cut. No chance in September, and this year looks doubtful.
The reasoning is clear — Trump's new tariffs. Powell said, 'Let’s see how the tariffs play out first,' and he can keep saying that indefinitely; months later, he could still have the same response. On the surface, it’s the Federal Reserve's independence, but in reality, it’s using Trump's policy as an excuse to avoid lowering rates.
The inflation data supports him even more, with core PCE rising for three consecutive months: 2.6% in April, 2.7% in May, and 2.8% in June. With the data increasing, he certainly can't cut rates; he has a legitimate reason.
Trump wants lower interest rates, mainly to reduce government debt interest payments and stimulate the economy. But you can't shout about a booming economy while complaining about debt repayments; this contradiction gives Powell leverage against him.
Tariffs not only raise prices but also allow companies to increase prices, and Powell is well aware of this.
After the press conference, U.S. stocks immediately fell, leaving those hoping for a rate cut dumbfounded. High rates will need to last longer, and companies with high debt will suffer, but it’s not all doom and gloom.
My view: avoid those highly sensitive to interest rates; choose those with cash on hand and stable earnings, hold onto insurance stocks and major leaders.
This is not just monetary policy; it’s clearly a political game. Powell and Trump may seem at odds, but they both want asset prices to rise. For us, don’t let market noise scare you away; staying in the game gives you a chance.
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