U.S. Markets React to Trump-Fed’s Stance amid Surprising Producer Price Index Decline
President Donald Trump
President Donald Trump recently dismissed speculations that he would seek to remove Federal Reserve Chair Jerome Powell directly after discussing the possible move with the lawmaker.
This comes when the FED Chair Powell denied bringing the interest rate down as Trump desires, with the purpose of seeing the potential of rising inflation that could lead to the stagflation scenario.
While the lawmaker gave support for this move, Trump decided not to move the plan forward with the excuse of having him under a fraud investigation. Especially when several market participants voiced concerns over the long-term run in both the market and the economy.
So this also means that if the fraud is found, then Jerome Powell could face removal before his term ends, potentially increasing the likelihood of an interest rate cut, despite recent strong economic data. However, any final decision may take months, and high market volatility is inevitable.
***Raising the probability of a rate cut → likely to push the gold up.***
The Federal Reserve has not issued an official statement, though Fed official John Williams emphasized, “Central bank independence is very important.”
Wholesales Inflation
The U.S. Producer Price Index (PPI) unexpectedly fell below both forecasts and prior figures, suggesting that businesses and manufacturers are absorbing higher U.S. tariffs rather than passing them on to consumers. This outcome contrasts with economists’ expectations of rising prices.
The market re-priced the odds of the interest rate decision once again after these two factors came into play, with the probability of a rate cut in September rising to 56.2% from 53.5%.
The stock and bond markets reacted negatively to the news, while gold prices surged by approximately 1.2% amid reports of the potential leadership change at the Federal Reserve.
