Rate War: Trump, Powell, and the Future of the Markets in Limbo
An Unsynchronized World, Shifting Markets
Today, it’s impossible to talk about the markets without addressing the tension surrounding the Fed, Trump, and that burning question: “Will we finally get rate cuts?” The post-Covid climate has completely reshuffled the deck: growth is no longer advancing at the same pace across continents, Europe has pulled ahead in equities, and meanwhile, the Fed is moving cautiously, scrutinized by the entire financial ecosystem... and closely monitored by Trump, who never misses an opportunity to apply pressure.
What strikes me first is this global desynchronization. Investors no longer see Europe as the eternal laggard: European equities have outperformed since the start of the year, even as US growth—long considered the world’s engine—is stalling. US forecasts have dropped to 1.3% growth this year—unheard of in a long time.
The Fed, Trapped by Inflation
In this context, the Fed is in the spotlight more than ever. After dropping rates by 100 basis points in 2023, it's now on pause, and nobody is really sure what comes next. Markets are hoping for a cut in September, but as long as core inflation remains around 3% (a level not seen since the late ‘90s, excluding Covid times), it’s a no-go. We often forget just how destructive 3% inflation can be for America’s middle class: for those without real estate or financial wealth, every price increase hits day-to-day life directly. The Fed can’t afford to take this lightly.
Political Pressure and Showdowns
Political pressure is omnipresent. Trump plays the emergency card: he wants low rates—fast—and isn’t shy about personalizing the debate, threatening to fire Powell, and multiplying headlines. It’s a classic American standoff, where politics meets economics without any filter. But the issue is far more complex. The Fed isn’t just one person: it’s a board with multiple sensibilities, forced to consider all of America, from the richest to the poorest. Mistakes have already been made, like underestimating post-Covid inflation: the Fed doesn’t want to repeat the same errors by easing policy too soon.
When High Rates Hit the Real Economy
On the ground, high rates hurt. The US real estate market is stalled, loans are expensive, and mortgage refinancing is reaching levels reminiscent of the subprime crisis. Americans feel this monetary policy directly in their ability to borrow, consume, and invest. It’s not just a salon debate for economists.
A Stock Market That Doesn’t Care?
And yet, the stock market doesn’t seem to care. It remains perched at valuation highs, even as bonds and cash now offer well-paid alternatives. There’s a stark disconnect: the complacency of equities contrasts with the vigilance of the bond market. If inflation picks up again, or if the Fed doesn’t move in September as many hope, correction could be brutal.
Trade War: The Last Barrier
The last key factor: the trade war. Trump is dragging out agreements, multiplying tariff threats, and delaying the visibility the Fed needs to act. In reality, the sooner we have concrete trade deals, the sooner the Fed can safely cut rates.
What to Watch Going Forward
The coming months will be crucial. Every statistic will be scrutinized: inflation, employment, but also corporate results and their “guidance.” It’s all connected: if the trade environment stabilizes and the numbers align, we can finally consider real monetary easing this fall. Otherwise, patience will be required, and markets may have to adjust to a reality far less “soft” than they imagine today.
In short: The Fed is trapped between caution and political pressure, the US economy is slowing, stocks seem disconnected from real risk... and everything will be decided by macro data and international policy this summer. Get ready to stay agile and don’t take what seems “obvious” today for granted. Markets like neither uncertainty nor surprises: the next phase may hold quite a few for them.
The IVT Team
July 18, 2025