Markets watch Powell's reactions

Trump flirts with removing Powell, then walks it back

President Donald Trump stirred fresh volatility in policy circles after telling a group of GOP lawmakers he was considering firing Federal Reserve Chair Jerome Powell. Though he later walked back the comment, saying it would only happen “unless it’s for fraud,” the remark reignited speculation around the Fed’s independence.

Dollar swung sharply overnight as speculation swirled around Powell’s fate. Reports surfaced that Trump had already drafted a dismissal letter and presented it during a closed-door meeting with lawmakers. The dollar initially plunged on fears of a blow to Fed credibility, before recovering as Trump distanced himself from the firing idea.

Still, the episode reinforced growing concerns over political interference at the central bank. Persistent pressure from the White House to lower rates has already called into question the Fed’s independence. While Powell chairs the FOMC, decisions are made collectively, limiting the scope for direct political influence. Markets remain cautious—any upheaval that compromises Fed autonomy could spark a sharp repricing in the dollar, equities, and most importantly, Treasuries.

A selloff in US government bonds would have a severe impact, driving yields higher and borrowing costs up at a time when deficits are expanding. That potential fallout may explain why Trump ultimately walked back his threat, at least for now.

Global tariff push expands: 150+ countries to receive new notices

Trump also revealed that his administration would send formal letters to over 150 countries announcing new tariff rates — expected to fall between 10% and 15%. The president described himself as “indifferent” to striking a trade agreement with the European Union, underscoring a hardline posture.

This massive tariff expansion builds on recent moves targeting Canada, Brazil, Japan, and others, adding further complexity to the global trade outlook ahead of the August 1 implementation deadline.

Fed’s Beige Book shows slight growth, warns of late-summer price acceleration

The Federal Reserve’s July Beige Book noted that US economic activity grew slightly between late May and early July. Five districts reported slight or modest growth, five were flat, and two saw contractions.

However, the overall business outlook was labeled "neutral to slightly pessimistic," with labor conditions cautious and only minor wage gains. Inflation concerns persisted, particularly around input costs linked to tariffs. Most districts described price pressures as "modest to moderate."

Firms in manufacturing and construction reported the greatest cost increases, with many beginning to pass them onto consumers via surcharges or outright price hikes. Others, unable to raise prices, are seeing margins shrink. The Fed warned that "consumer prices will start to rise more rapidly by late summer," adding another layer of complexity to monetary policy.

UK unemployment jumps to 4.7%, complicating BoE easing path

UK labor market data showed unexpected deterioration. Unemployment rose to 4.7% in the three months through May, exceeding consensus estimates. This adds to recent GDP and inflation data that have clouded the Bank of England’s rate cut trajectory.

While a BoE rate cut is still likely in August, the case is now less clear-cut. The Monetary Policy Committee is clearly divided, and hawks like Chief Economist Huw Pill—who dissented in May—could again oppose easing. Even if the BoE proceeds with cuts, expectations suggest no more than one cut per quarter to avoid reigniting inflation.

Australia’s jobless rate surges, sealing case for RBA rate cut

Australia’s June unemployment rate unexpectedly rose to a four-year high, with hiring activity slowing across sectors. Economists now widely expect the Reserve Bank of Australia (RBA) to cut interest rates in August.