In many ways, former President Donald Trump’s campaign is upending the status quo. He wants to take Federal Reserve Chairman Jerome Powell to court for his monetary policy. This new action occurs amid heavy pressure on the Fed to start cutting interest rates. Market expectations for these cuts have now risen above 50% for all of the futures meetings for 2025.
Trump’s threats follow his public calls for Powell to start enacting emergency rate cuts, under the justification of alarming economic performance. To make matters worse, the former president is vocally opposing Powell’s policies. This leads to some difficult questions about the legality and viability of a lawsuit against the Fed chairman. As analysts have noted, the real power lies with Trump to start the legal firestorm. They’re still not sure exactly what their lawsuit would be based on.
Trump, for his part, has called for a political reversal of U.S. monetary policy. He’s pressuring Japan to increase its own defense spending. This digital push is a result of the continued fallout from current geopolitical tensions as well as Trump’s desire to raise national security issues alongside economic concerns.
Market participants are reacting to these developments with much greater optimism about the timing of any future rate cuts. As things stand now, market pricing indicates over a 50% probability of a rate cut. This would hold true for every one of the other meetings in 2025. Economists expect those rates to be at least 75 basis points lower by the end of the year. Indeed, many analysts think a 50 basis point cut is the minimum given the prevailing economic conditions. In fact, they propose that a cut be made prior to the September meeting.
Despite recent increases in core consumer price index (CPI) data—reaching a five-month high of 3.1%—the Federal Reserve appears poised to ease monetary policy. This decision comes against an especially dark economic backdrop. The largest month-over-month drop in the German ZEW survey underscores how trader pessimism is ramping up sobre about where the economy is headed.
European markets, for their part, are reacting bullishly as the early trade closely reflects their Asian allies. The DAX and Euro Stoxx indexes are both on fire with very large gains. This increase is a testament to the global market’s reaction to positive are dampened expectations regarding interest rates and economic stability.
The United States’ stock markets are flying to new all-time highs. Not surprisingly, both the S&P 500 and Nasdaq composite index closed at all-time highs! These milestones suggest strong investor confidence despite the mixed signals from inflation reports and ongoing discussions surrounding monetary policy.