Core Viewpoint - The Federal Reserve has decided to maintain the benchmark interest rate at 4.25-4.50%, indicating limited room for future rate cuts due to the current economic conditions and political pressures [1][6]. Economic Summary - The U.S. economy is experiencing moderate slowdown, with a second-quarter GDP annualized growth rate of 3.0%. However, private sector momentum has significantly weakened, with private sector annualized growth dropping to 1.2%, the lowest in 2023 [4]. - Key economic challenges include a decline in construction investment (-10.3%) and residential investment (-4.6%), both sensitive to interest rates. High long-term rates are increasing costs for home purchases and real estate investments, leading to a sluggish housing market [4]. - Consumer spending growth in the second quarter was only 1.4%, which, while an improvement from the first quarter (0.5%), remains below the long-term trend of 2-3% [4]. Policy Summary - The Federal Reserve has maintained its current interest rate level, which is described as "moderately restrictive," suggesting limited future rate cuts. Chairman Powell has not provided clear guidance on when cuts might occur [6]. - Powell emphasized that the Fed will not be responsible for national fiscal issues and will focus on its dual mandate of maximum employment and price stability [6][7]. Strategy Summary - Given the increasing demand for dollars and the ongoing "funding shortage," the strategy suggests buying long-term U.S. Treasuries when the 5-year yield is in the 4.05%-4.15% range and the 10-year yield is in the 4.5%-4.6% range [8]. - The recommendation is to adopt a neutral and cautious stance towards the dollar, correcting previous overly bearish sentiments [8].

Group 1: Core Issues - The controversy surrounding the Federal Reserve's headquarters renovation has escalated, with costs rising from an initial budget of $1.9 billion to $2.5 billion, a 30% increase, drawing significant political scrutiny [2] - Bill Pulte, a close ally of former President Trump, publicly expressed encouragement over reports that Jerome Powell might resign, causing market volatility with the S&P 500 dropping 0.3% and the Dow Jones Industrial Average falling 0.63% [1][2] Group 2: Political Dynamics - The renovation project has become a focal point for political attacks, with Senator Tim Scott comparing the Federal Reserve headquarters to the "Palace of Versailles" [4] - Powell defended the project during a Senate hearing, denying the presence of luxury features, while the White House's Office of Management and Budget criticized him for not addressing the Fed's financial situation [4] Group 3: Monetary Policy Tensions - The ongoing conflict between Trump and Powell centers on interest rate policies, with Trump claiming that current rates are too high and advocating for immediate rate cuts [4][6] - Trump's team has considered appointing a "shadow chairman" to influence monetary policy before Powell's term ends in May 2026, indicating a desire for more control over the Fed [6][7] Group 4: Institutional Challenges - Even if Powell were to resign, institutional barriers remain that would complicate achieving Trump's interest rate reduction goals, as the Fed Chair only holds one vote among twelve in the Federal Open Market Committee [7] - The Fed's structure, with staggered terms for board members, creates a natural firewall against rapid policy changes, limiting Trump's influence [7] Group 5: Market Sentiment and Independence - The crisis has raised concerns about the Fed's independence, with analysts noting that discussions about losing this independence could undermine market confidence [9][11] - The importance of maintaining a non-political approach to monetary policy has been emphasized by Powell, who stated that achieving macroeconomic stability requires a commitment to independence [9][11]