Hi and welcome to the Macro Monthly for July. Compared to the past few months, July seemed a bit slower. My main observation for the month is that the Fed renovation is expensive –  it was under renovation the 2+ years I lived in DC but my sticking point with Powell is not over interest rates but that the Federal Reserve did not want to hire me –  crypto is still in, open banking is now out, there are new credit score models, and the trade war may be resolved with some countries. 

1. Trump Wanting Powell to Resign  

Trump’s quest to get Powell out of his fed chair position seems never-ending. Sometimes I forget Trump’s second term only started a few months, so much has happened. This time Trump is using the cost of the Federal Reserve renovation to draw negative attention and criticism to Powell. We are supposed to take away that this is an exorbitant cost, Powell is not a good chair, and we need a Fed chair who will lower interest rates.

My take away is that there should be more governing from both men than these photo ops in hard hats.

Lowering interest rates prematurely, especially before we have seen the end of the tariff war could weaken the economy as inflation is still a fear. The US economy is still growing and unemployment is relatively low at around 4%, so there’s not an urgent need to stimulate the economy. So from the position of the Fed chair, the risks of cutting rates are unnecessary and larger than the risks of holding rates steady a bit longer.

As a politician, Trump wants lower rates to stimulate economic growth and make voters happy. While having lower rates and making mortgages more affordable would be great, it’s not the full picture. Here we come to what the root of this issue is. It’s not about the rates. It’s about maintaining the independence of the Fed. Without this independence, economic policy would be based around making voters happy, not keeping the economy stable. The independence of the Federal Reserve is vital to a stable economy. 

For many fintech companies - lower rates would be beneficial. For lenders, there will be an increase in borrowing at lower rates. For companies that have gone public, stock prices will boost. For BNPL companies it will be easier to finance installment plans at lower rates. 

Graph of Fed Funds Rate from the WSJ

2. Open Banking No Longer