We're here to talk about the potential fallout though. Jeffre chief market strategist David Zervos also said to be on the list of possible next Fed officials. Uh David, it's great to have you.Welcome. Um we had a long discussion about the absence at least so far of an actual charge. What should she do.Well, that's a that's a tricky question. I think it's uh it's a complicated time. It's uh unprecedented as you guys have said.Although, as you were just discussing, we've seen um three different cases. And in ...

Well, President Trump says he is firing Fed Governor Lisa Cook over alleged mortgage fraud. Let's get to Steve Leeman with the latest. Hi, Steve.>> Morning, Mike. Yeah, more questions and answers this morning about the independence of the Fed, the power of the president over the central bank, and of course, the more important outlook for monetary policy when it comes to mortgage. The president saying he fired Cook for quote allegedly making false statements on one or more mortgage agreements.Cook in a state ...

Group 1: Federal Reserve Developments - President Trump fired Federal Reserve Governor Lisa Cook amid allegations of mortgage fraud, raising concerns about the Fed's independence under his administration [4][6] - Cook's dismissal could lead to a more dovish majority on the Federal Reserve Board, as Trump would have another opportunity to appoint a member [5] - The dollar experienced a nearly 0.4% drop following the news of Cook's firing, indicating market sensitivity to changes in Fed leadership [6] Group 2: Economic Indicators and Market Reactions - Stock index futures fell slightly, with S&P 500 futures down 0.1%, Nasdaq 100 futures down 0.1%, and Dow futures down 0.2% [3] - The 10-year Treasury yield rose by 2 basis points to 4.3%, while the 2-year yield fell by 2 basis points to 3.71% [4] - Upcoming economic data includes July Durable Goods Orders expected to decrease by 4%, and home prices projected to rise by 2.6% year-over-year in June [8][9] Group 3: Trade and Tariff Threats - President Trump threatened to impose substantial additional tariffs and export restrictions on countries with digital taxes targeting U.S. tech firms [9][10] - Digital services taxes (DSTs) in Europe disproportionately affect American tech giants like Apple, Alphabet, Amazon, and Meta Platforms, while exempting Chinese firms [10] Group 4: Federal Reserve Chair Nomination - Kevin Hassett, a potential nominee to replace Fed Chair Jerome Powell, indicated that Trump is expected to name the next head of the central bank in a few months [11] - Hassett noted that Powell's openness to a rate cut would not influence Trump's decision to extend Powell's term [11]

Market Performance & Economic Outlook - S&P 500 earnings are up 10% year-over-year, and NASDAQ 100 earnings are up 34% year-over-year, indicating strength in the US market [1] - Concerns about Fed independence are causing a slight sell-off at the long end of the curve [2] - The Fed's influence is strongest on the two-year rate, which has decreased by approximately 7-8 basis points [3] Monetary Policy & Interest Rates - The Fed only controls the short-term lending rate, and excessive cuts could lead to a steepening of the yield curve, potentially resulting in higher longer-term interest rates [3] - There is potential for the Fed to implement two or three rate cuts without significantly impacting the long end of the curve, even with inflation around 3% [4] - Lower rates on money markets and challenges in generating income from interest rates and bonds make equity income more attractive [5] Investment Strategy - The ITWO ETF, a Russell 2000 high-income ETF focused on small caps, is highlighted as a pick [4] - Small caps are more leveraged and have shorter maturity, making them more sensitive to and potentially benefiting more from rate cuts compared to large caps [5]

Good morning, Frank. The firing of Fed Governor Lisa Cook does open dramatic questions or create dramatic questions about the legality of the move, the independence of the Fed, and of course, the outlook for monetary policy. The president cited his authority under the Constitution in the Federal Reserve Act of 1913. In stating he had the power to remove Cook for what the president said was quote allegedly making false statements on one or more mortgage agreements. The president said in the letter to Cook, " ...

Market Impact of Potential Fed Turmoil - The market has become conditioned to noise from the administration regarding policy makers [2][3] - The market may initially take potential Fed turmoil in stride, viewing it as a continuation of a dovish Fed policy and anticipating future rate cuts [3][4] - Equity market is expected to react positively to potential aggressive rate cut strategy, craving more stimulus [6] - Bond market is expected to become more stressed, with risk premium potentially creeping higher [7][8] Potential Risks and Concerns - S&P Global warned that the US credit rating could come under pressure if political developments weigh on the strength of American institutions [9] - Turmoil alone is not expected to drive a downgrade, but a more pervasive approach could be a contributing factor [11] - Deficits, debt levels, and the steepening yield curve are greater concerns than the potential Fed turmoil [12] Investment Strategies - Technology sector is considered a safe trade due to the AI race [13] - Opportunities exist in the industrials and financials sectors [14] - Focus is shifting towards size and earning stability in the back half of the year due to increasing volatility [15]

Fed Independence & Political Influence - The potential firing of Fed Governor Lisa Cook by President Trump raises concerns about the legality of the move, the independence of the Fed, and the outlook for monetary policy [1] - The market may not react negatively to a perceived lack of Fed independence, prioritizing immediate easy monetary policy over long-term inflation concerns [24] - The Federal Reserve is potentially becoming permanently politically marked, similar to the Supreme Court, influencing how it's perceived and judged [30] Monetary Policy Outlook - Market probabilities initially showed an 82% probability of a rate cut in September, with a slight increase from 34% to 42% for a second cut in October following the news [5] - The market was already pricing in a dovish Fed, with the December 2026 Fed funds contract at 3% [20] - A Trump-controlled Fed board could potentially eliminate the 12 district presidents, effectively giving the president full control of monetary policy [6] Potential Market Reactions - Key indicators to watch for market concern about Fed independence are the dollar, the bond market, and then the stock market [25] - The strength of the American economy and the liquidity of US dollars globally might make the market immune to concerns about Fed independence [26] Board Composition - Replacing Cook would potentially give Trump a majority on the Fed board [5] - Current board members have varying degrees of perceived independence, with some seen as more likely to align with the president's views [18][19]

Monetary Policy & Interest Rates - The market anticipates a potential rate cut in September, influenced by Chairman Powell's recent statements [1] - The Federal Reserve (Fed) is increasingly concerned about rising unemployment rates, potentially triggered by changes in immigration policies and other factors [2] - The Fed's emphasis on employment over inflation, despite inflation being at 3% (above the 2% target), raises questions about its policy bias [6] - There's debate on whether current policies are "modestly restrictive," with arguments suggesting real rates are closer to neutral at 150 basis points (15%) [7] Economic Trends & Labor Market - The economy is experiencing a slowdown in both supply and demand, creating a "curious" situation [3] - Global demographic shifts, including declining fertility rates, are impacting the labor market [4] - Monthly job growth of 40,000 to 50,000 may not be a negative outcome, considering the evolving dynamics of the labor market [4] - Recent labor reports and revisions were not favorable, contributing to the Fed's openness to a September rate cut [5] Fed Independence & Political Pressure - There are concerns about the Fed's independence due to significant and direct political pressure, reminiscent of the Johnson and Nixon eras [12][13] - The Fed is under pressure from the administration, potentially affecting the reappointment of board members [12] - Chairman Powell is navigating differing views within the Federal Open Market Committee (FOMC) and attempting to build consensus [9][10] - The Fed's decisions are heavily data-dependent, closely monitoring upcoming inflation and employment reports before their September meeting [11]

Federal Reserve & Monetary Policy - The Fed's members must work without political considerations to make the best judgments [2] - The FOMC consists of governors and Fed presidents, requiring consensus-building rather than individual decisions [6][7] - The Fed is balancing sluggish job market and GDP growth with above-target inflation, primarily in services [9] - The debate within the Fed centers on whether to prioritize inflation or the labor market side of the dual mandate [11][12] - A strong August jobs number could reduce the likelihood of action at the September meeting [12] - The debate is about the risk of not meeting either side of the dual mandate [12] Inflation & Economic Data - Approximately 80 million workers in the US making $50,000 or less have lost over 25% of purchasing power in the last five years [14] - The Fed should aim for a 2% headline inflation rate, especially for low and moderate-income workers [14][15] - Consumers can substitute goods for services, with goods representing about 25% of the US economy and services 75% [17] - The Beige Book is a critical part of the Fed's process, providing valuable anecdotal insights from businesses across the country [20][21] - Over-reliance on any single data print should be avoided, focusing instead on three-to-six-month trends [23][24]

Key Takeaways from the FX and Rates Sentiment Survey Industry Overview - The survey focuses on the foreign exchange (FX) and rates market sentiment, particularly regarding the US dollar (USD), Euro (EUR), and emerging markets (EM) currencies. It reflects the views of 42 fund managers with a total of USD 573 billion in assets under management (AUM) [7][9]. Core Insights 1. **Short USD Thesis**: The short USD remains the highest conviction trade for the rest of the year, despite being challenged by rising global growth concerns [1][3][20]. 2. **Global Growth Concerns**: There is a significant concern regarding a potential global growth slowdown, which could impact the short USD thesis [3][25]. 3. **US Exceptionalism**: The fading of US exceptionalism is a recurring theme, with expectations that both US equities and the USD may decline [1][32][33]. 4. **Investor Sentiment**: A strong majority of respondents expect the next Federal Reserve (Fed) chair to be more dovish, impacting market expectations [44][46]. 5. **FX Hedge Ratios**: Many investors prefer to increase their FX hedge ratios, indicating a cautious approach towards US assets [49][50]. Additional Insights 1. **Emerging Markets (EM) Sentiment**: EM FX and duration sentiment appears to have peaked, with a slight decline in positioning and views noted in August [15][94]. 2. **European Investment Push**: There is muted conviction regarding a broad-based European investment push, with concerns about EU defense spending and fiscal policies [22][61]. 3. **Tariff Expectations**: Most respondents expect tariffs against China to remain between 30-40% by the end of 2025, reflecting ongoing trade tensions [17][34]. 4. **Oil Price Expectations**: Expectations for oil prices are that they will remain range-bound between $60-69 per barrel, with some upside risks anticipated [36][37]. 5. **UK and Eurozone Sentiment**: GBP sentiment has turned neutral with bearish levels, while EUR sentiment remains bullish despite lighter positioning [110][103]. Potential Risks and Opportunities 1. **Fed Independence Risks**: Nearly half of the respondents expect risks to Fed independence to manifest as a steeper US Treasury (UST) curve and a weaker USD [46][39]. 2. **Global Risk Appetite**: The appetite for risk-taking in portfolios remains lower than normal, with average cash levels reported at 3.3% [77][78]. 3. **Duration Exposure**: Global duration exposure has fallen relative to the previous month, indicating a cautious stance among investors [78][80]. Conclusion The survey indicates a complex landscape for FX and rates, with significant concerns about global growth, US fiscal policy, and the evolving dynamics of the Fed. Investors are adjusting their strategies accordingly, with a notable shift towards hedging and cautious positioning in the face of potential risks.