Good morning, traders,
Jerome Powell is no stranger to pressure.
But the weight coming down on the Fed chair right now isn’t just from Wall Street or Washington, it’s turning into a full-blown political and legal firestorm.
First, there’s the referral to the Justice Department.
Powell’s being accused of lying to Congress about the Federal Reserve’s eye-watering $2.5 billion office renovation.
That’s not a rounding error. And if there’s one thing the DOJ doesn’t take lightly, it’s someone fudging the facts in front of lawmakers.
Especially when that someone holds one of the most influential financial positions on the planet.
Then came the hammer from Mohamed El-Erian, a top economist and a guy who doesn’t throw grenades lightly.
He’s publicly called on Powell to step down, not because of some partisan beef, but because of what it means for the Fed’s independence.
El-Erian’s warning was blunt: If the chair of the Fed is tied up in scandal, it undermines everything the institution stands for.
And as if that wasn’t enough, Donald Trump has been turning up the heat too, though for very different reasons.
Trump wants rate cuts. Fast.
He’s made no secret that juicing the economy is a priority, especially with all his tariffs in play.
Here’s the kicker, though: Despite the noise, the economy doesn’t seem to be cracking.
Just look at General Motors.
GM just beat earnings expectations. That alone is impressive given the headwinds.
But what’s even more interesting is what’s not changing.
Back in May, GM adjusted its full-year forecast to account for as much as $5 billion in extra costs from auto tariffs. It stuck with that estimate this week.
Meaning the tariffs are still a weight on the books — but they haven’t gotten worse. And GM is still outperforming.
Here’s what it all means for traders.
Full Steam Ahead
The big takeaway is that even with the Fed holding firm on rates, even with tariffs tightening the screws, parts of the economy are still grinding out results.
That’s a big reason Powell hasn’t blinked.
Cutting rates when companies like GM are still beating expectations would look desperate — and possibly reckless.
But Powell’s ability to stay the course may not last much longer.
Public confidence is fragile. Political pressure is boiling. And the legal threat hanging over his head?
That’s a wildcard no Fed chair wants to deal with.
A Pile of Woes
This isn’t just about whether Powell survives the scandal.
It’s about whether the market can continue to operate with confidence in the Fed while its leader is under investigation and under fire from every corner of the political map.
If Powell resigns — or is forced out — you can bet the conversation will shift fast.
Rate policy, recession odds, inflation fears, stock market stability … all of it gets shaken up when leadership at the Fed goes into flux.
That’s the risk.
Right now, the Fed’s credibility is still intact but it’s starting to fray.
And if that thread snaps, we’re not just talking about one man’s job. We’re talking about the financial system losing its rudder when stability matters most.
We’ll see how Powell responds. He’s been stubborn before, sometimes to a fault.
But stubborn won’t cut it if this investigation gathers steam. And if El-Erian’s warning is any signal, even Fed loyalists may soon jump ship to protect the institution.
The real question now: Is the economy strong enough to keep plowing forward without needing the Fed’s help — or will Powell’s problems start spilling over into everything else?
Either way, the clock is ticking.
Stay street smart,
Jeff Zananiri
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