Powell's Ultimate Counterattack: A Secret Political Game
Last week, Federal Reserve Chairman Powell dropped a 'bomb' at the press conference, and the market realized this was not an ordinary interest rate meeting, but rather his clever counterattack on Trump, with weapons still 'legally' handed over by Trump.
Interest Rates Hard to Lower
The Federal Reserve maintained interest rates last week. Powell stated, 'Unless there are major economic issues, we won't lower rates,' implying doubts about rate cuts in September and this year. He used Trump's push for a new round of tariffs as an excuse, claiming to first assess the impact of tariffs on the economy, thus delaying rate cuts, superficially emphasizing the independence of the Federal Reserve while actually acting on Trump's policies.
Data Support
Inflation data is Powell's 'scientific basis' for delaying rate cuts. The core PCE data that the Federal Reserve focuses on showed an upward trend from April to June, and naturally, he won't lower rates when inflation is rising.
Trump's Contradiction
Trump hopes for rate cuts to reduce national debt interest expenses and stimulate the economy, but while boasting about a strong economy, he complains about high repayment costs, creating contradictions that Powell uses to counter.
Inflation Chain Reaction
Tariffs not only drive up the prices of imported goods but can also trigger 'opportunistic price hikes.' For example, if Trump imposes tariffs on washing machines, the price of dryers also rises; companies often take the opportunity to raise prices rather than due to rising costs, and Powell is well aware of this.
Market and Investment
After Powell's speech, U.S. stocks fell, and the dovish comments that investors were hoping for fell flat. The high-interest-rate environment will continue, adversely affecting real estate, discretionary consumption, and indebted companies, but not all sectors are affected. If Powell's goal is to maintain market stability and the survival space of the Federal Reserve, long-term asset prices need to be supported. It is advisable to avoid interest rate-sensitive industries and to allocate to companies with strong cash flow and stable profits, such as insurance stocks Chubb and WR Berkley, while maintaining core holdings in leading U.S. stocks.
This is not only a monetary policy adjustment but also a political game. Powell and Trump seem to be in opposition, but in fact, they share the same goal of maintaining rising asset prices. Investors should not be scared away by market noise; staying at the table is the only way to win.
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