The Fed vs President : Round 2

Between the last FOMC meeting and now, the rumours that President Trump wants to remove Chair Powell have seen a peak and bottom. The same reports have caused the financial markets to do the same, but the weekend interview of President Trump might stabilise the issue for now as he declines the reports. 

The problem is that between now and the end of Chair Powell's term in March 2026, there are eight  FOMC meetings left. During this period, the government is aggressively implementing its three policies: tariffs, tax cuts, and deregulation. This would cause the highest volatility in inflation and growth during this period, both of which are mandates of the Fed. 

The current meeting though being neutral on rates might give some insight into how tariff impact is being read by FOMC. It is important to note whether they will act on actual data or expectations. The answer will provide some roadmap. 

The 10-year bond yields are at 4.35% along with fed rate swap markets suggesting three to four rate cuts this year. Any hawkish indication during the meeting might push the yields higher resulting in yields above the discomfort level of 4.5%.