The Powell pop

Regular addicts may recall being told to sit on your nerves when Netanyahu decided to light up Iran.

Never sell in a storm, we said, mixing metaphors, because we’ve seen this movie before. Crises come. Crises go. Markets are momentarily distracted, but at the end of the day (more word salad) it’s only corporate earnings, the economy and monetary policy that matter. The rest is noise.

So, here we be.

US stocks have drifted back to record territory (last visited in February, when we still thought Trump was amusing). The bond market has stabilized. Yields are okay. On Bay Street the TSX has had a boffo 2025, despite elbows-up, a chippy federal election, tariff terror and a new Progressive Conservative PM. The gain as of this morning was about 6.7%, year-to-date.

Sure, the world is still a hot mess in many ways, but that’s getting normal. Through it all, a balanced and diversified global portfolio has once again proven to be the best defence.

Now, what next?

It looks like we may be closer to lower interest rates than seemed apparent a week ago. The US dollar has sunk (pushing the loonie higher) on speculation the orange guy is about to name a new boss for the Fed, America’s central bank. The current chair, Jerome Powell – whose term has not yet expired (and was appointed by Trump 1.0), has been a cautious dude, keeping rates steady for months now on the fear tariffs may push inflation higher and the economy lower.

Trump now hates Powell. Rather than pausing rates, he says, they should be slashed. Maybe by a full 2% or more (insane). The president wants explosive economic growth in order to pay for his fat tax cuts and spending plans, and looser monetary policy – leading to cheaper loans and more borrowing – is a quick way to get it.

Powell is in place until next May. Prying him out of office would not be easy. But not impossible. By naming a successor openly committed to loosening the reins, Trump would be sending out a signal that markets could soon expect a heap more liquidity. Almost as effective as a rate cut itself.

This, plus concern about trade wars, has helped push the US currency down about 10% this year – and drive ours above the 73-cent mark (when many people thought 60 cents was coming). Markets are also watching July 9th – when Trump’s 90-day pause on global reciprocal tariffs is set to expire.

The news of the day seems to be Powell. It’s a big deal. Implications already.

“His idea of naming a successor well before Powell leaves office would effectively create a shadow over the head of the U.S. central bank that could undermine him,” says Bloomberg. And adds a Wall Street analyst: ““It’s a given that Trump’s pick to succeed Powell, when it comes, will be one that sits at the highly dovish end of the spectrum and will support Trump’s agenda of lowering interest rates. The issue with this is (that) it will resurface questions from earlier in the year around the Fed’s independence, which, as we saw, undermines confidence in the Fed and the USD.”

Will the Bank of Canada follow? After all, our headline inflation number these days is a lowly 1.7%, with unemployment ticking higher. Most Bay Streeters now expect a modest recession in the back half of the year – and just when a million families are renegotiating their home loans. The ideal time for a rate cut, especially with the loonie in a comfort zone.

Unknowns?

Lots of them still. What’s Israel going to do next? What about Gaza? And poor Ukraine, now that Puttin clearly does not give a fig what Trump thinks. Iran one-and-done? Will the markets have a cow again if the trade war ramps up again the week after next? And what if 47 just fires Powell abruptly, as his tax bills clears the Senate and $3 trillion more is headed for the American debt pile?

Oh, so much to fret and vex over. And to ignore.

Stay the course. Focus on your family. Walk the dog. She never heard of Pete Hegseth.

About the picture: “Answering your call for dog pics – here is a photo my friend’s dog, Maple,” writes Lei. “She super well behaved rescue, living her best life in Fort Mac with multiple long walks/dog park visits daily. Appreciate it if you consider featuring her. I been a reader for 7 years now and thank you for the daily content and the consistent narrative that help me stay calm.”

To be in touch or send a picture of your beast, email to ‘garth@garth.ca’.

Source: https://www.greaterfool.ca/2025/06/26/the-powell-pop/