FedWatch's Ben Emons says FOMC may signal more cuts from here

CNBC Television • 5:23 minutes • Published 2025-07-18 • YouTube

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Fed Chair Jerome Powell Under Pressure: What Trump's Criticism Means for Interest Rates and Your Investments

The relationship between President Trump and Federal Reserve Chairman Jerome Powell has reached a new level of tension, and according to Fed Watch Advisors founder Ben Evans, this could create significant market volatility around the upcoming July interest rate decision.

The Political Pressure Cooker

Despite the Federal Reserve's mandate to remain independent and apolitical, the reality is that Fed officials are human beings operating under intense scrutiny. Powell and the Federal Open Market Committee (FOMC) now find themselves navigating not just economic data, but also political headwinds that could influence market perceptions of their decisions.

"You get now far more scrutiny on this July meeting than we would normally have, irrespective of the economic data," Evans noted during a recent market discussion.

Mixed Economic Signals Create Complexity

The current economic landscape presents a puzzle for Fed officials:

Strong Economic Indicators:
- Reasonable inflation data
- Good employment numbers
- Strong retail sales figures

Political Pressure:
- Trump's criticism of Powell
- Fed Governor Waller's strong advocacy for rate cuts
- Market expectations for potential easing

This combination of solid economic fundamentals with political pressure creates an unusual dynamic where the Fed might consider rate cuts despite a strong economy.

The "Shadow Chair" Effect

Even if Trump doesn't actually fire Powell, the political tension creates what Evans calls a "shadow chair" scenario. With Powell's term ending in less than a year, markets are already looking ahead to his potential replacement and how that might affect monetary policy.

The key insight: It's still a committee decision. While individual Fed governors like Waller may advocate strongly for rate cuts, the FOMC as a whole makes the final call.

What This Means for Different Types of Investors

Large Public Companies

Most large corporations have been relatively insulated from the current interest rate environment and may not see dramatic changes from modest rate adjustments.

Small Businesses: The Hidden Story

Small businesses present a more compelling case for why rate cuts matter:

Funding Challenges: Many rely heavily on short-term, variable-rate debt
Tariff Concerns: Business outlook clouded by trade policy uncertainty
Inflation Expectations: Atlanta Fed data shows small business inflation expectations remain high

Rate cuts could provide significant relief to this sector, potentially leading to a small-cap stock rally if cuts materialize quickly.

Market Implications and Investment Strategy

The current environment suggests several key considerations for investors:

Increased Volatility: Political tensions around Fed decisions are likely to create more market swings
Yield Curve Normalization: Rate cuts could help flatten the inverted yield curve
Small-Cap Opportunity: Companies dependent on short-term funding could benefit disproportionately from cuts

The Bottom Line

While the Fed maintains its independence in theory, the reality is that political pressure and market expectations are creating a complex environment for monetary policy decisions. Investors should prepare for:

Higher volatility around Fed meetings
Potential opportunities in rate-sensitive sectors
Continued focus on the interplay between politics and monetary policy

The July Fed meeting has become much more than a routine policy decision – it's a test of the Fed's ability to navigate political pressure while maintaining its credibility and independence. For investors, this means paying closer attention not just to economic data, but to the political dynamics that increasingly influence market expectations and Fed decision-making.

Key Takeaway: Whether Powell stays or goes may matter less than how the overall committee responds to the unique combination of political pressure and economic conditions we're seeing today. Smart investors will watch for signals about future rate cuts while positioning themselves to benefit from potential small business and small-cap opportunities that could emerge from a more accommodative monetary policy stance.

📝 Transcript (191 entries):

strangle just because you just never know. >> Good advice good perspective. Well meantime, our next guest thinks tensions between President Trump and Fed Chair Jerome Powell could reach a boiling point by the next interest rate decision, scheduled for later this month.

Ben Evans is founder and chief investment officer at Fed Watch Advisors. Ben, thank you for being with us. I mean, my goodness, I can't remember what day it was this week, but it was a long day and a short day all in one. We had we thought we knew one thing, and then an hour and a half later, we knew something different. Even though the fed is supposed to be independent, apolitical, there are also people. Jerome Powell is a person. How how is it really possible for him and the committee to move forward and continue to do their job, seemingly unaffected by this? I mean, isn't everyone just going to be shrouding every move, decision and discussion point in sort of a curiosity point? Why did they really do this?

>> Yeah, I think that's right. Courtney, you get now far more scrutiny on this July meeting than we would normally have. You know, irrespective of the economic data. You know, we've got, you know, reasonable inflation data this week. And we had good employment data the other day and actually yesterday with retail sales too. So we got an economy that's strong. Keep this fed on hold for the time being. But the attention to this meeting is only building up now.

You saw overnight Governor Waller really coming out with a I would call a pounding table view of like we can cut rates now. So it kind of adds into the

mix of this, what it's going to be happening here at this meeting, you know, are they really tilting towards easing while we actually have an economy that's strong? I think that tension kind of displays itself this week in the markets, when it really became apparent that they wanted to remove Powell and you saw the volatility reappear. I think this is what we could expect going into this July meeting.

Because the VIX is low, the probability for a cut is price near zero. So you could get some tension here I think as all the scrutiny comes together.

>> Hey Ben it's Courtney Garcia here. The other Courtney who's on the desk. When we're looking at this. We've clearly had a lot of headlines. Right. And at this point in time, Trump is saying, okay, he's not going to fire

Powell. But clearly there is an issue there. They're going head to head. He doesn't want him in. So at what point does it matter

if he actually fires him or not. Because at this point he's kind of out the door. And what does that do to rate changes, if anything at all, or anything that we should expect as investors?

>> Yeah. I think what you're adding to is basically about the shadow chair, right. Ultimately, we all know that power will be out in about a year from now, actually less than a year. And whether he actually gets removed in between or not, it's really about this committee and then about this next candidate and how that candidate is going to interact outside of the committee. I think that's what the market will pay attention to. But nonetheless, it's still a committee. So as you had this example of Waller really making a strong case for a cut doesn't mean that the cut actually will happen. It's still the FOMC that makes that decision. Ultimately.

I do think though that, you know, could you get some sort of group think here where people are all going to be on the table saying, well, a cut is definitely possible. I think that's the biggest signal out of this meeting is that from here, what cuts will happen, how soon?

And there was a little change here with Daly the other day of indicating that she's also on board for this, this next round of cuts. So Powell out of the way. Yes or no? It's the committee that drives it. But I do think they will make signal more cuts from here.

>> Hey, Ben what's going on? It's great to see you as always. Just quickly. I know you give a lot of great insights about the fed, and typically we focus a lot of our attention around like, large publicly traded companies. But there's a large cohort in terms of the small business community that perhaps isn't feeling the same euphoria as as might be reflected in the stock market. Can you speak to how rate cuts might affect the front end of the curve? And those companies that are probably borrowing with short term variable rate debt, and how perhaps that might be presenting a tug of war between what we're seeing from full employment versus what we're seeing from the small business community?

>> Yeah. And I think that's a good point, because you have companies that you mentioned that are very reliant on short term funding. And so rate cuts there would potentially help, so to speak. In other words, if you do get cuts, the yield curve should normalize further. The short term rates should get lower. And those companies should be able to borrow at a lower rate. Yet, you know, it may not happen really because of the strength of the economy and that that that difference there of when it will happen. And the rate difference for these companies, I think, matters. I also think for these companies, their business outlook has been clouded by the tariffs. And if you look at the Atlanta Fed, they put out a business inflation outlook that's actually still quite high relative to where, you know, say market based expectations are for inflation. So these companies are sitting in a bit of a pickle here. So rate cuts actually would help them a lot.

People have always connected small caps or rate cuts as a positive thing that could see a big rally. I think that would actually be the case. But if we're getting quick cut

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