The Trump administration is investigating Federal Reserve Chair Jerome Powell over headquarters renovations, sparking concerns of political interference. Powell rebuked the move, emphasizing the importance of Fed independence in setting interest rates. Markets reacted negatively, raising questions about future Fed policy and credibility.
As the new year progresses, focus shifts to the December Consumer Price Index report for insights on inflation trends. Analysts are eager for clean data following November’s distortions from the government shutdown. Expectations are for an uptick in inflation due to ongoing impacts of tariffs and shutdown repercussions on the economy.
A Supreme Court decision on the legality of Trump’s tariffs under the International Emergency Economic Powers Act is anticipated. Reports suggest skepticism from justices, but the outcome remains uncertain. Even if the ruling goes against Trump, it may not revert tariffs to pre-2025 levels, impacting market dynamics and trade policies.
US mortgage rates and housing affordability are under scrutiny after President Trump’s $200 billion directive to lower rates. While the move initially lowered rates and boosted homebuilder stocks, concerns linger about increased housing prices offsetting savings. Analysts caution about the long-term impact and the need for clarity on policy implementation.
Q4 earnings season kicks off with big banks reporting this week. Expect strong momentum in investment banking and fee-based income, but net interest income may face challenges due to interest rate projections. Banks with diverse revenue streams are positioned to fare better, but market expectations are already factored into pricing.
Looking beyond banks, attention turns to AI capital expenditures as companies gear up for earnings reports. The economy’s strong growth may boost company performance, with a focus on AI spending trends. Investors will closely monitor hyperscalers’ capital expenditure guidance for signs of increased spending on the AI arms race, which could impact stock valuations.
Read more at Morningstar: Markets Brief: US Fed Independence at Risk, Updates on Inflation, Tariffs, Bank Earnings