The week opened on a nasty surprise:
Donald Trump attempted another attack on Jerome Powell, starting an investigation through the Department of Justice against the Federal Reserve Chair.
Jerome Powell quickly responded in an unusual address (for an unusual issue), published on Sunday evening.
Fortunately, the effect was not long-lasting for the Stock Markets, as reactions to defend the Head of the Central Bank were widespread, spanning from bankers around the world to Republican officials lifting shields against attacks that were going too far.
This naturally led to a massive rebound before the CPI data (after a prior drop in the overnight futures session) – And the Market was proven right.
- First, it seems this investigation will not go very far, given the Senate’s heavy backing of the Fed Chair.
- Second, the CPI, which followed on Tuesday, did not surprise to the upside and even led to a positive surprise on the Year-over-year Core CPI measure (at 2.6% ~ still high but far from scary.)
- Third, the event might provide even more reasons for Jerome Powell to remain at the Fed as Governor after his term (as Chair) expires in May.
His term as Governor could extend for two more years, and with the resilience he has shown amid these attacks, it wouldn’t be surprising to see him stand as an independent voice in an ever-more politicized Federal Reserve.
The issue is that other elements that had been looming over Markets since the end of December have disrupted the positive sentiment.
Revolts in Iran are continuing, and as the President pledged to fight injustices around the world, he threatened the Regime to intervene, which added further investor angst.
There is an estimated and very tragic +12,000 casualties from brutal repressions from the IRGC and Basij forces.
Oil added a substantial premium, reflecting a larger risk premium, rising 10% from the past week to $62.
