Bullish Fed Bearish Government

On one side, Jerome Powell — the man holding the keys to U.S. monetary policy — talks about possible interest rate cuts. On the other, Treasury Secretary Scott Bessent, in a sharp interview, declares that the U.S. will NOT change its stance toward China, even if the markets… tremble with uncertainty.

Bullish on one side. Bearish on the other.

THE FED’S THINKING

Let’s start with Jerome Powell. The Fed Chair spoke in Philadelphia and essentially opened the door to POSSIBLE ADDITIONAL rate cuts. And not just that.

He gave a detailed overview of where the Fed currently stands on its “quantitative tightening” program — the strategy of shrinking the central bank’s balance sheet, which now exceeds $6 trillion. According to Powell, the Fed may be approaching the end of this process.

More specifically, he spoke about:

• The gradual conclusion of QT,

• The need to maintain “ample reserves” in the banking system, and

• A labor market that now shows SIGNS OF WEAKNESS.

New job hires have dropped noticeably, while labor force participation has started to decline.

Powell stressed that the Fed is walking a fine line:

If we move too fast, we risk abandoning the fight against inflation halfway.
If we move too slowly, we risk significant damage to the labor market.

Data following the July meeting showed that the job market has started to weaken considerably. As a result, the two risks — unemployment and inflation — are now more balanced. That makes the scenario of rate cuts increasingly likely, as markets have already been anticipating.

And that’s BULLISH for markets. Because if rates go down,
(a) access to capital becomes easier,
(b) borrowing costs drop,
(c) corporate investments get a boost, and
(d) investors start positioning themselves more aggressively.

TRADE TENSIONS

Now, let’s move to Scott Bessent. The U.S. Treasury Secretary gave a very clear and tough interview to CNBC during the Invest in America Forum. And there, he poured a bit of cold water on the market’s optimistic outlook.

What did he say?

We don’t negotiate because the stock market goes down.

He made it crystal clear: the U.S. will not soften its stance toward China, even if the markets experience high volatility or sharp swings. According to him, the administration’s decisions are guided not by the short-term moves of the S&P 500, but by the long-term macroeconomic interest of the country.

Commenting on a recent Wall Street Journal report that implied Beijing is betting on pressure from a new U.S. market downturn, Bessent was scathing:

A disgraceful report. The Wall Street Journal is copy-pasting directives from the CCP.

All this comes in an environment where:

• Trump is threatening new tariffs,

• China is restricting rare earth exports, and

• The S&P 500 is on a roller coaster, swinging up and down depending on the rhetoric of the day.

Obviously, all this is BEARISH — because when trade tensions rise,
(a) geopolitical uncertainty increases,
(b) investor confidence drops, and
(c) many companies slow down their strategic decisions amid an unstable environment.

Posted Using INLEO