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Federal Reserve

Mark Reeth

brewmarkets.com

Yesterday evening, President Trump became the first sitting US president to attempt to fire a Federal Reserve governor. He was also the first to do so via social media.

, the president cited allegations that Fed Governor Lisa Cook committed mortgage fraud as “sufficient reason” to oust Cook. But, like Leonardo DiCaprio in 

, Cook made it clear that she ain’t leaving.

“I will not resign,” Cook said in a statement, noting that the president had “no authority” to fire her. Her lawyer announced this afternoon that Cook will 

 contending her dismissal. Whether or not allegations of fraud are enough cause is an open question that will likely need to be answered by the Supreme Court, in what is widely expected to be a protracted legal battle.

That leaves Cook, whose term as a Fed governor doesn’t end until 2038, in limbo. It also gives Trump a further foothold in the Fed, where he’s already set to replace retiring Governor Adriana Kugler. If he can successfully give Cook the boot, that would allow him to nominate his fourth appointee in the Fed—

 on the Fed’s seven-member board, a big step in reshaping the central bank in his image.

Trump’s attempted firing is just the latest salvo in his campaign against the Fed, and while the stock market has responded harshly at the idea of dismissing Chair Jerome Powell in the past, it took today’s news in stride—giving the president no reason to back down, and every reason to keep pushing the Fed to the brink.

Trump reshapes Fed in his image

The president has apparently fired Fed governor Lisa Cook, who is suing.

Fed up

Lucy Brewster

If you want a straightforward, to-the-point, affirmative statement—don’t ask Fed Chair Jerome Powell.

As per usual, the bespectacled economist used his signature indirect language to set the stage for the central bank’s next move during his annual address in Jackson Hole, Wyoming—but investors still managed to read 

What Powell said: “With policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.” What the market heard: Rate cuts are coming.

While he reiterated that tariffs could still pose a risk to stoking inflation, Powell added that the labor market remains strong—all conditions that enable the Fed to “proceed carefully.” He noted that a “reasonable base case” could be that the price increase from tariffs would actually be “short-lived”—or dare we say, 

That was interpreted as great news for the market, given a lower risk of inflation justifies lowering borrowing costs.

Since December 2024, the Fed has kept borrowing rates steady at a range of 4.25% to 4.5%. Traders are pricing in a 83% chance the Fed cuts rates in September, up from 75% yesterday.

Stocks soared in response to the speech, while Treasury yields went into freefall.

“It’s no surprise that markets reacted with glee and both stock and bond investors will be happy if prices close this afternoon at the levels they are now trading,” explained Chief Investment Officer for Northlight Asset Management Chris Zaccarelli. “To use the old Fed-analogy, the party isn’t over yet and Jay isn’t ready to take away the (spiked) punch bowl.”

Zooming out, this particular address from Powell is a consequential one. It will likely be his last, given President Trump’s not-so-subtle attacks on the Fed’s independence and Powell himself.

Though he didn't mention the president by name, Powell did affirm the importance of the separation between the Fed and politics: “FOMC members will make these decisions, based solely on their assessment of the data and its implications for the economic outlook and the balance of risks,” explained Powell. “We will never deviate from that approach.”

He could have dropped the mic right there.—

Jerome Powell said there may be rate cuts coming

The Fed Chair's speech in Jackson Hole was light on details, but investors read between the lines.

We're (probably) getting a rate cut

Despite the White House waging an aggressive trade war, DOGE taking a sledgehammer to the federal workforce, and worst of all, news that Taylor Swift will not be releasing a re-recording of 

anytime soon…the labor market is managing to keep it together.

This morning, the Bureau of Labor Statistics 

 that US employers added 139,000 jobs in May, slightly 

. While the employment numbers were by no means an A+, C’s get degrees, and the performance was a welcome surprise to those on the Street who thought the chaotic policy environment may be starting to crack a core pillar of the economy.

The unemployment rate stayed steady at 4.2%.

Average hourly wages jumped 0.4% since last month and rose 3.9% from last year, beating expectations.

Jobs growth was uneven: The healthcare and social assistance sector was a bright spot, adding 78,000 jobs in May. Leisure and hospitality added 48,000 jobs, while manufacturing lost 8,000 jobs.

Some meh news: The number of jobs created in the past two months has been revised down by 95,000.

The labor market pulling off an upset today doesn’t mean it’s in perfect health. After all, analysts pointed out, the worst effects of the trade war may 

“We expect to see further softening in the second half of 2025 as tariffs and other policy measures weigh more heavily on the economy, leading the Fed to start cutting rates in September,” explained Senior US Economist, UBS Global Wealth Management Brian Rose.

As Fed Chair Jerome Powell ponders what to do about interest rates, today’s data supports keeping rates the same for now. Why? The Fed is unlikely to 

 by lowering rates when the economy is not in dire shape.

“If payroll growth trudges on like this, the Fed will likely remain in ‘wait and see’ mode,” explained Chief Economist for LPL Financial Jeffrey Roach.

 that the Fed will keep rates the same at its meeting later this month, and an 83% chance rates will be kept the same again in July.

It’s rare to see anyone be that sure about anything these days.—

Amid the uncertainty, employers keep hiring 

Today's jobs numbers showed the labor market is holding up. 

Amid uncertainty, employers keep hiring

Just as it looked like Federal Reserve Chair Jerome Powell had successfully pulled off the fabled soft landing—defeating inflation, slashing interest rates, and avoiding a recession all at the same time—politics threw our fearless bespeckled pilot a twist: a second Donald Trump presidency.

The FOMC’s unanimous decision this afternoon to cut rates by a quarter point keeps the Fed on track to continue down the path Powell laid out in September, when the central bank gave rates a massive 50 basis point haircut.

But investors are already looking beyond today’s announcement and wondering how the central bank is going to handle 

 that economists say could trigger inflation, on top of the already precarious balance it has managed to strike.

 quarter point cut this year. However, some economists expect the Fed to act more cautiously after today’s cut, given that Trump’s high tariffs and deficit-widening fiscal plan could contribute to prices rising once again.

“Predictably, investors had developed unreasonable expectations about the magnitude of rate cuts over the next few quarters and now with a focus on deficits, markets must reorient to reality,” explained Chief Economist for LPL Financial Jeffrey Roach.

Adding to this already complicated puzzle of economics and politics, Trump’s victory poses a more existential threat to the Fed.

While plenty of presidents have expressed frustration with the central bank, Trump went as far as to suggest that the president should have 

 Powell (who he once called a “bigger enemy” to the US than China’s Xi Jinping) prematurely, he is expected to replace him when Powell’s term is up in 2026.

The Fed is designed to be apolitical for good reason. As former Fed Chair William McChesney Martin once 

 back in 1955, the central bank’s job is to “take the punch bowl away just as the party gets going.”

Trump not only wants to own the proverbial punchbowl, but pick what goes in it.

Only time will tell who makes the first party foul.—

The Federal Reserve has almost stuck the soft landing

The Federal Reserve has made its latest interest rate cut, but what does it mean for the future?

The Fed looks ahead

Like eagle-eyed Swifties awaiting the release of 

 or football fans agonizing over whether their team will reach the Super Bowl, investors have been anticipating how much the Federal Reserve will slash rates by (yes, we’re lame).

And today, we got the answer. In its first cut in over four years, the Fed cut interest rates by 50 basis points, surprising the swath of economists who predicted a more standard 25 basis point cut—and markets celebrated.

Back during the peak of the Covid-19 pandemic, the Fed kept interest rates near zero to stimulate the economy. But as inflation spiraled out of control, the Fed aggressively 

 for 11 consecutive meetings over the course of 2022 and 2023. Then, once again, the seesaw 

 as the labor market slowed and consumers tightened their belts, slowing economic growth.

Now, the central bank is going for a soft landing, in which the economy is stimulated by lower rates while not slowing enough to send it into a recession. Lower rates means companies should be able to spend more, buying homes will be more affordable, and 

 reserves into risk-on assets like equities.

During his press conference, Fed Chair Jerome Powell reiterated that the central bank will be making its monetary decisions meeting-by-meeting and rely on macro data. But while the Fed went big today, Powell warned that “no one should look at this and say this is the new pace.”

The Fed’s updated dot plot now calls for a target range of 4.25% to 4.5% by the end of this year, with policymakers’ median projection 4.4%. That means another 50 basis points worth of cuts this year, which will likely be split into 

. The median projected Fed Funds Rate by the end of 2025 is now 3.4%, which would indicate another 100 basis points worth of cuts next year, with the Fed Funds Rate eventually reaching a long-run neutral rate of 2.9% in 2026. However, Powell could easily change course, as the Fed has done many times in the past.

“After pushing the envelope with a double-sized rate cut, investors should expect a rather regimented easing process going forward that sees rates come down closer to neutral over time,” explained Chief of Investment Strategy at Glenmede Jason Pride in a note today.—

Jerome Powell just announced the first rate cut in 4 years

The Federal Reserve just cut interest rates. Here's what happens next.

The first cut is the deepest 

The Powell plane is cleared for a soft landing. But don’t start clapping just yet.

While economists spent the past week debating whether the Federal Reserve will cut rates by 25 or 50 basis points, the more relevant question is how lower interest rates will affect your portfolio.

. But with valuations so high and the market already pricing in rate cuts, investors treated today's announcement as a 

. Regardless of how stocks performed today, fine-tuning your portfolio to best position yourself for this massive economic shift will set you up for gains in the months and years ahead.

Here’s how to invest in a world with lower interest rates:

Since smaller companies usually carry more debt compared to their larger peers and are therefore more sensitive to borrowing costs, they should get a boost, according to UBS strategist Jonathan Golub. They also rely more on outside financing, which becomes more affordable with lower rates.

 stocks will also benefit. These stocks have been popular over the last few months, and investors who’ve kept cash waiting on the sidelines will be using it to buy top performers. Analysts at UBS identified 

 (BRZE) as fairly priced picks in a recent note.

Analysts point to energy as one sector that’s well-positioned for a jolt to economic growth, especially considering the sector’s recent downturn amid geopolitical instability. Morgan Stanley analyst Devin McDermott selected 

This interest rate-sensitive sector tends to get a boost from lower rates, since housing market activity should accelerate thanks to more affordable mortgages. Within real estate, Morgan Stanley analysts are overweight 

, some homebuilding stocks are also set to benefit.

Morgan Stanley Chief Investment Officer Mike Wilson argued in a recent note that defensive picks are better positioned for lower rates than cyclicals. He’s especially a fan of Utilities, and is overweight 

Businesses aren’t the only ones spending more now that rates have been cut—consumers should open their wallets, as well. According to 

, many of the stocks that performed best after previous rate cuts were consumer-facing favorites: 

As always, stay diversified. Just because a certain sector soared after a previous rate cut doesn’t necessarily mean it’ll happen now. And even analysts themselves disagree about what corners of the stock market are set to gain. While Wall Street expects volatility over the coming months as investors get used to the new rules of the game, don’t get spooked, and stay the course.—

A woman looking at a screen with a candlestick chart

Interest rates have been cut—here's how to invest.

With rate cuts locked in, investors need to know how to position their portfolios for profits.

How to invest in interest rate cuts

If history is any indication, the Federal Reserve’s imminent rate cut could provide an electric jolt to the already high-flying S&P 500 over the next year.

Federal Reserve Chair Jerome Powell has all but confirmed that the central bank will announce a rate cut tomorrow. But whether the Fed will 

Powell is hoping to replicate Alan Greenspan’s victorious soft landing back in 1995, when the Fed then lowered rates amid a soaring stock market. To pull it off, Powell is relying on strong corporate profits and a 

 to buoy the economy and protect it from a rate-cut-induced tailspin.

 when the Fed lowers rates, according to a Bloomberg analysis tracking rate cuts since 1989. In fact, the S&P 500 rose an average of 13% in the six months following a rate cut during years where there was no recession.

Turning the clock back even further, the short-, medium-, and long-term market returns after a rate cut are impressive.

“During the five cutting cycles since 1984 where the economy did not quickly enter a recession, the S&P 500 typically returned +6% during the three months, +9% during the six months, and +17% during the 12 months after the first Fed cut,” Goldman Sachs Chief US Equity Strategist David Kostin wrote in a recent note.

Going back even further, since 1980, after each of the 20 times the Fed cut rates with stocks near all-time highs, the S&P 500 was 

, according to Chief Market Strategist at the Carson Group Ryan Detrick.

However, past performance doesn’t guarantee future results. After all, 

 is an ominous macro indication that things won’t be simple this time around.

And the presidential election this year is a wild card that differentiates this easing cycle from past soft landings. Given the highly charged rhetoric and varying economic policies proposed, the market will likely remain volatile heading into November.

So, while it’s too soon to declare victory quite yet, right now the Powell plane looks all clear for soft landing.—