President Donald Trump may have brokered a cease-fire between Iran and Israel but his own war of words with Federal Reserve Chair Jerome Powell is only escalating.
The attacks have largely been one-sided so far, with Trump repeatedly urging Powell to cut interest rates and even calling him a “very dumb hardheaded person,” ahead of the Fed Chair’s appearance in front of Congress Tuesday.
Powell
finally fired back, albeit subtly. He suggested the central bank would have cut rates further by now, were it not for the inflation risks tied to Trump’s raft of tariffs.
But despite the very public difference of opinion, the pair may not be that far apart. If inflation pressures remain contained “we’ll get to a place where we can cut rates sooner rather than later,” Powell said. He also didn’t rule out lowering borrowing costs at the central bank’s July meeting.
With risks in the Middle East abating in recent days, the market’s focus will quickly turn back to tariffs—if it hasn’t already after Powell’s comments.
The recent slump in oil prices will help ease inflation pressures but the next big
question for investors is likely to be what happens when the 90-day pause of many levies comes to an end in two weeks.
The S&P 500 ended within 1% of its all-time-high Tuesday and if tariffs deals are struck,
indexes could soar to new records.
Better still, if Trump and Powell resolve their conflict over interest rates, investors could thrive in a new era of peace for markets.
—Callum Keown
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CONTENT FROM: Columbia Threadneedle Investments
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Bonds reclaim role as a volatility buffer
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With markets in flux, fixed income is providing important diversification. We explore the key market drivers and how investors can navigate the evolving landscape.
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Fed Chair Says Tariffs Put Rate Cuts on Hold
Fed Chair Jerome Powell didn’t rule out lowering interest rates at the central bank’s
July policy meeting, but he did tell Congress that there are many possible paths, and that the Fed might have lowered rates by now if not for inflation risks tied to the Trump administration’s April 2 tariffs.
- Powell told lawmakers that he’s tuning out the political noise and focusing on the Fed’s job, despite criticism
lobbed at him online by President Donald Trump, who called him a “very dumb, hardheaded person” in a social media post Tuesday morning. Trump wants him to cut rates already.
- Looking in the rearview mirror at existing data, an argument could be made for the Fed to be at a neutral level, Powell said. That would
require it to have made at least a couple of cuts, but it held off because tariffs are expected to push inflation higher, he said.
- Powell wouldn’t commit to any specific timeline for cuts, but his comments reinforced market expectations that September is the earliest likely window. Asked whether a rate cut could come
at the Fed’s July meeting, Powell said the decision depends on incoming data, particularly around inflation and employment.
- Market participants are pricing in just an 18.6% chance of a rate cut in July, compared with an 87% probability in September, according to the CME FedWatch tool. The Fed has held rates steady since December and Powell said they’ll continue to adapt to the evolving situation.
What’s Next: Powell appeared confident that patience has been the right approach—and suggested that many lawmakers agree, even if they won’t say so publicly. He returns this morning to the Senate to testify to the Committee on Banking, Housing, and Urban Affairs.
—Nicole Goodkind
President Bashes Reports That Nuclear Facilities Weren’t Destroyed
President Donald Trump speaking at the NATO Summit Wednesday morning refuted
a leaked intelligence report suggesting the U.S. strikes on Iran only set back the country’s nuclear program by a few months. He said the attacks on Tehran’s nuclear sites were a “complete obliteration.”
- Trump, speaking at The Hague, in the Netherlands, said American strikes ended the war between Israel and Iran and that Tehran’s nuclear program was set back decades.
- Defense Secretary Pete Hegseth said it was a flawless mission: “It was devastationunderneath Fordow [an Iranian underground nuclear site]...Any assessment that tells you is something otherwise is speculating with other motives.”
- The comments come as the cease-fire between Iran and Israel seems to be holding firm after Trump berated both countries on Tuesday for violating the agreement just hours after it began.
What’s Next: The truce remains shaky but for now
there are positive signs that Iran and Israel want to avoid any further conflict. But the leaked Defense Intelligence Agency report could put the fragile peace under strain. Asked Wednesday if the U.S. would attack Iran again if the country rebuilt its nuclear enrichment program, Trump answered “sure.”
—Callum Keown and Elsa Ohlen
Defense Stocks Are a ‘Mega Force’ as NATO, Tech Make the Case
The U.S. is at the center of an enormous shift in the global military industry, tied in part to the race to dominate artificial intelligence technologies, that could make a case for long-term investing in defense and aerospace stocks, according to BlackRock’s Investment Institute.
- The group, led by Jean Boivin, examined “mega forces” that drive trends. U.S. pressure on North Atlantic Treaty Organization allies to boost their military spending as they meet in the Netherlands will be a significant positive for the sector, as will Russia’s war with Ukraine, and Middle East conflict.
- Europe’s military spending has hit its target of 2% of GDP, Boivin notes, and NATO members are expected to agree to raise spending to 5% of GDP. That could boost stocks of American companies like Lockheed Martin, General Dynamics, and Northrop Grumman as allies
tap them to buy hardware and technology.
- The Stockholm International Peace Research Institute (Sipri) estimated world military spending hit $2.7 trillion last year, up 9.4% from 2023, in the biggest annual increase since the Cold War. Global AI spending, by contrast, won’t top $630 billion until 2028, according to International Data Corporation forecasts.
- The Republican tax and spending megabill, which is now being debated in the Senate, is likely to add around $113 billion to the Pentagon budget for next year. That would take total discretionary military spending past the $1 trillion mark.
What’s Next: President Donald Trump is attending the NATO meetings, where he expects to meet Ukraine President Volodymyr Zelensky amid hopes for a deal to end Russia’s war. Trump told reporters Wednesday: “I think there’s going to be a very big news. NATO is going to become very strong with us.”
—Martin Baccardax and Liz Moyer
SALT and Medicaid Still Divide Lawmakers As Trump Twists Arms
