Weekly Economic Update: July 22, 2025

The drama continues

It feels like we’ve been writing about this every week for the last six months, but once again, President Donald Trump says he wants to fire Federal Reserve Chair Jerome Powell because interest rates are “artificially high.”¹ Last week opened another chapter in the saga, as Trump told a roomful of Republicans he planned to fire Powell. But he denied any such plans merely an hour later, claiming firing Powell was “highly unlikely.”² The comments sent markets every which way until they finally settled and returned back to where they had been.

According to an anonymous official, Trump has called Powell one of his worst appointments, and lawmakers have expressed approval for firing him.³ The Supreme Court stepped in a few months ago and said the president does not have the power to fire Powell unless it is for cause, so it seems that now the White House is going the “show me the man and I will show you the crime” route.⁴

In this case, the man is Powell. But since Powell cannot be removed because he will not lower rates as Trump wants, much has been made about his “crime” — the refurbishment of the Fed’s facilities and the cost overruns incurred.⁵ There are calls for the Department of Justice to investigate what Powell said to Congress regarding the spending on the buildings and whether he perjured himself.

It all reads like bad Shakespeare, as if the Fed is expected to be more fiscally responsible than the rest of our government. How did we get $37 trillion in debt?⁶ Sounds like a lot of overspending.

Powell isn’t innocent here, either. With inflation stuck between 2-3%, he is technically correct that the Fed’s mandate of 2% has not been met. But he lowered rates by 0.5% one month or so before the election, when the Consumer Price Index (CPI) was at 2.4% and continued to cut after the election when CPI rose to 2.9% — basically where inflation is now.⁷

Powell maintains he wants to keep the Fed “independent.” Trump wants Powell gone. The problem is that the markets will not be happy with Powell getting sacked, because it would introduce new uncertainty and a new Fed chief who probably won’t be viewed as independent. The solution is simple: Trump needs to tolerate Powell until Powell’s term as chair is up and not rile markets with talk of firing Powell. He also needs to quit with the name-calling and threats. Then Trump can select his new Fed chief and go down the path of getting them appointed per the normal process.

Powell, meanwhile, can do himself a favor by not being so rigid and make a symbolic cut of 25 or 50 basis points, which we don’t think would lead to a spike in inflation. Plus, the consumer and the economy would benefit. Until that happens, this soap opera will continue.

Meanwhile, here’s everything else

There’s an old saying that “The beatings will continue until morale improves.” That’s kind of how we feel about all the tariff threats lately. We’re either prepared to implement it on Aug. 1 or not, and we either have deals or not. But the constant declarations and demands are getting old. Markets like consistency, and the “Art of the Deal” hyperbole is wearing thin.

Despite all the new tough talk on tariffs, the markets were little fazed.⁸ They focused on earnings and inflation data instead and, by and large, liked what they saw. Earnings are a bit lower, but are still making the markets happy.⁹ Inflation isn’t improving, but it’s not increasing significantly and remains in the 2.5-3% range.

We saw record highs for the S&P 500 and the Nasdaq recently, and as we move further into the slowness of summer, the market is upwardly biased and seems to be shrugging off bad news.^10,11 The challenge right now is not to lose focus and get distracted. Some unknowns — like the debt ceiling and taxes — are off the table, but other unknowns may be very serious, like the tariffs and the Powell situation.

We may actually follow through on tariffs on Aug. 1 if deals don’t come through. But right now, markets are banking on Trump extending or softening his stance on tariff implementation, which could be a dangerous assumption. Then we have the Powell soap opera we talked about above. One option to consider is that markets may be discounting what happens if Powell says he doesn’t need this aggravation and resigns. All the name-calling and threats could finally get to him, and his abrupt departure would upset markets just as much as his being fired. Our advice? Keep alert, stay disciplined and remain patient.

Coming this week

• The coming week will be driven primarily by earnings and headlines, including tariffs, the Powell-Trump saga or trade deals being announced. Anything can happen — so keep your head on a swivel.
• For data, we’ll get leading indicators on Monday and existing home sales and MBA mortgage applications on Wednesday. We’ll see weekly unemployment claims and new home sales on Thursday.
• Powell will speak at a banking conference on Tuesday, just one week before the next Fed meeting. Pay attention to any verbal crumbs he might drop regarding a cut in rates, but we think he’ll be tight-lipped on that and talk more about how the Fed needs to remain “independent.” After the most recent slight uptick in CPI, the odds of a rate cut at the July meeting are now less than 5%.¹²
• Second-quarter earnings are in full swing, and things are just OK so far.⁹ With 12% of S&P 500 companies reporting results as of July 18, 83% have reported positive earnings per share (EPS) and positive revenue. Earnings growth for the second quarter for the S&P 500 is currently 5.6%, down from 13.4% last quarter. If that’s the actual growth rate for the quarter, it will mark the lowest earnings growth reported by the index since the fourth quarter of 2023. For the current quarter, three S&P 500 companies have issued negative EPS guidance, and four have issued positive. Valuation is grinding higher for the S&P 500, with the forward 12-month price-to-earnings (P/E) ratio at 22.2 vs. 20.5 last quarter. This P/E ratio is much higher than the five-year average (19.9) and the 10-year average (18.4). We are starting to get frothy.

Sources:

¹ Tami Luhby. CNN. July 19, 2025. “Trump says Powell is costing the US a fortune by not lowering rates. But firing the Fed chair may not fix the issue.” https://www.cnn.com/2025/07/19/business/powell-trump-interest-rates-fed. Accessed July 21, 2025.

² Kristen Holmes, et al. CNN. July 16, 2025. “Trump says it’s ‘highly unlikely’ he’ll fire Powell after suggesting otherwise in meeting with lawmakers.” https://www.cnn.com/2025/07/16/politics/jerome-powell-donald-trump-firing. Accessed July 21, 2025.

³ Phillip Inman. The Guardian. July 18, 2025. “Trump calls Fed chair ‘a numbskull’ who ‘makes it difficult for people to buy a house.’” https://www.theguardian.com/business/2025/jul/18/trump-calls-fed-chair-a-numbskull-who-makes-it-difficult-for-people-to-buy-a-house. Accessed July 21, 2025.

⁴ Victoria Guida. Politico. May 22, 2025. “Supreme Court signals Trump can’t fire Fed Chair Powell.” https://www.politico.com/news/2025/05/22/supreme-court-fed-powell-trump-00366526. Accessed July 21, 2025.

⁵ Kriston Capps. Bloomberg. July 19, 2025. “Why the Federal Reserve’s Building Renovation Costs $2.5 Billion.” https://www.bloomberg.com/news/articles/2025-07-19/trump-s-attacking-powell-over-fed-renovation-here-s-why-it-costs-2-5-billion. Accessed July 21, 2025.

⁶ USDebtClock.org. “US Debt Clock.org.” Accessed July 21, 2025.

⁷ Trading Economics. “United States Inflation Rate.” https://tradingeconomics.com/united-states/inflation-cpi. Accessed July 21, 2025.

⁸ David French. Reuters. July 18, 2025. “S&P, Nasdaq end on subdued note after brief dip on latest Trump tariff rumbling.” https://www.reuters.com/business/sp-nasdaq-end-subdued-note-after-brief-dip-latest-trump-tariff-rumbling-2025-07-18/. Accessed July 21, 2025.

⁹ John Butters. FactSet. July 18, 2025. “Earnings Insight.” https://advantage.factset.com/hubfs/Website/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_071825.pdf. Accessed July 21, 2025.

¹⁰ Yahoo! Finance. “S&P 500 (ˆGSPC).” https://finance.yahoo.com/quote/%5EGSPC/. Accessed July 21, 2025.

¹¹ Yahoo! Finance. “NASDAQ Composite (ˆIXIC).” https://finance.yahoo.com/quote/%5EIXIC/. Accessed July 21, 2025.

¹² CME Group. “FedWatch.” https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html. Accessed July 21, 2025.

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