Market Trends & Bitcoin - Bitcoin reached a new all-time high just shy of $112,000 [1] - Bitcoin ETFs are seeing billions of dollars flowing in [1] - Bitcoin-related companies like Block and MicroStrategy are rising [1] Currency & Dollar Weakness - The dollar has declined over 10% year-to-date [3] - Lower front-end interest rates, reallocation out of the US, and hedging are driving dollar weakness [4][5] - The dollar's decline may continue due to allocation shifts and historical trends [6][7] - The dollar is at roughly fair value, but currencies never stop at fair value [6] Federal Reserve & Interest Rates - Expectation of less Fed independence is causing a change in Fed funds expectations next year, with the market expecting significantly lower interest rates around May/June [10] - Less Fed independence is causing slightly higher longer-term inflation expectations [10] - Foreign investors holding US treasuries in very short tenor bonds (three years and less) may let them expire, impacting demand [12] Treasury & Stablecoins - Relaxing the SLR (supplementary leverage ratio) could help Treasury demand [14] - Increased demand for stablecoins, backed by Treasury bills, could help short-end demand but steepen the yield curve [14][15] - The long end of the yield curve, impacting mortgage rates and business loans, will be hard for the Treasury to control [15] Equity Markets & Valuation - US stocks are fairly richly valued at 22 times 12-month forward price earnings, especially versus peers overseas [17] - Concentration and bullishness are increasing in equity markets [18] - Higher inflation and significantly slower growth are expected later this year [19]

Economic Assessment - The US economy is likened to a middle-aged man with potential but needs to trim "fat," suggesting areas for improvement [1][2] - High debt levels and policies undermining Federal Reserve independence could increase inflation [3] - Policies less focused on economic growth and more on political objectives, such as tariffs and immigration, are causing economic strain [3][4] Risks and Concerns - Policy decisions are shifting away from economic growth towards political objectives [3] - These issues may not be immediately fatal to the economy but are detrimental to its health [4]

Market Trends & Fed Influence - The report analyzes the impact of presidential criticism of the Federal Reserve (Fed) on interest rates and bond yields [1][2] - A research paper suggests Trump's tweets had a significant impact on U S Treasury futures, moving fed funds futures lower by 2 6% basis points [4] - The market may be anticipating the impact of a Trump-appointed Fed chair on future interest rates [8] Factors Influencing Bond Yields - Bond yields are influenced by various factors, including weak ADP reports, strong payroll data, inflation figures, and geopolitical events like Iran hostilities [6] - Deficits, a weaker dollar, and weaker growth also affect bond market trading [7] Fed Independence & Foreign Investment - Questioning the Fed's independence could make U S assets, particularly treasuries, less attractive to foreign buyers [9] Future Fed Composition - Four of the seven Fed board members will be Trump appointees, potentially leading to a more united governor group but a more disparate presidential group [15][16] Fed's Consensus-Driven Culture - The Fed operates with a culture of consensus, where members often defer to the chair and seek agreement on policy decisions [17][19] - Powell has had a low percentage of dissents, indicating his ability to create consensus within the Fed [21]

“Fed independence derives from important statutory protections,” explains a former vice-chair of the central bank. In a guest essay he warns that potential threats to that autonomy come from two sources https://t.co/cEoQY9Pvjc ...

Federal Reserve Policy & Independence - Market anticipates the next Fed chair to be dovish, evidenced by record futures wagers [1] - Concerns exist regarding potential pressure on the Fed to lower rates due to geopolitical tensions and presidential influence [1][3] - Appointing a "shadow Fed chair" is viewed as unwise and could steepen the yield curve [2] - Questioning Fed independence could negatively impact markets, potentially leading to a dollar sell-off and yield curve steepening [4] - Maintaining Fed independence is crucial, and candidates for Fed chair are expected to uphold this principle [6][10] - A hypothetical 200 basis point (2%) rate cut, as suggested by the president, could have the opposite effect on the Treasury curve [7][8] Geopolitical Risk & Market Impact - A hypothetical scenario involving a limited military action in Iran could initially cause oil prices to rise and stocks to fall, but a swift resolution could be bullish [14][15] - A protracted war involving the U S in Iran would be categorically bearish for markets [15] Market Dynamics & Crypto - The stock market's resilience is attributed to low unemployment, strong retail participation, and infrastructure spending [18] - Institutions are increasingly entering the crypto market, signaling a significant shift [21] - Anticipation of a Stablecoin bill and a market structure bill is expected to bring legitimacy to the crypto space [22] - Tokenized equities and perpetual futures are emerging trends in both crypto and traditional finance [22]

Fed Chair Succession Speculation - Market views Powell's potential successor, possibly Bessen, with caution due to perceived loyalty to Trump and potential for earlier Fed rate cuts [1][2] - Trump's desire to influence Fed policy is driving speculation about a successor to Powell before May 2026 [2][3] Fed Independence Concerns - The market is questioning the definition of Fed independence, considering political affiliations of potential candidates [4] - Naming a successor early could undermine Powell's role and raise questions about his ability to complete his term until May 2026 [3][5] Potential Candidates - Besides Bessen, Kevin Warsh and Kevin Hassett are also being considered as potential candidates [2]

ISSUE 139 | May 15, 2025 | 11:35 AM EDT FED INDEPENDENCE: HOW CONCERNING? President Trump's public criticism of the Fed and, more importantly, his attempts to turn words into action by setting in motion a challenge to the landmark ruling that has prevented presidents from removing officials of independent agencies without cause have raised serious concerns about Fed independence. We talk to former Fed Vice Chair Richard Clarida, the Hoover Institution's John Cochrane, and GS' Jan Hatzius and Joseph Briggs, ...