A note from the president... What Fed Chair Jerome Powell said today... Rate cuts could be coming... Trump's 'shadow Fed' could ignite the animal spirits... A D.C. all-nighter... The 'big, beautiful breakup' continues...

When five central bankers walk into a room...

This morning, Federal Reserve Chairman Jerome Powell spoke as part of a panel discussion at an event hosted by the European Central Bank ("ECB") in Portugal. In addition to the ECB head, his fellow attendees represented the Japanese, Korean, and British central banks.

Over the course of the hour-long question-and-answer session, Powell and his peers covered topics like interest-rate policy, the dollar's reserve currency status, tariffs... and what keeps them up at night.

Powell didn't make many new headlines. He walked the same line that he has for months... The economy is in a good spot, inflation is coming down, but tariffs put both at risk.

He reiterated what he said last week: The Fed likely would have cut rates by now if not for uncertain tariff policy. Instead, the central bank is still in "wait and see" mode. Powell wouldn't commit to a rate cut at the central bank's July 30 meeting, though he didn't rule one out, either.

This was probably the most important piece of information to come out of this central bankers' gathering...

Powell did say that the Fed is preparing to lower rates later this year. Here's how he described the feeling of the policy-setting committee...

A majority of us do feel that it will be appropriate in the remaining four meetings of the year to begin to reduce rates again.

By how much, though, will depend on the data that comes in, the pace of inflation, and the state of the labor market.

Powell added that he is "very focused" on policy, and that criticism from the White House doesn't factor into his considerations.

In a show of solidarity, ECB President Christine Lagarde said that she and the rest of the panel would be doing the exact same thing as Powell – holding steady in the face of tariff risks, despite the pressure to cut rates.

And on that subject...

A note from the president...

While Powell has told us time and again that the Fed is in "wait and see" mode about tariffs, the White House doesn't see it that way.

We've covered President Donald Trump's criticisms of "too late" Powell and the Fed many times in the past few months (like here, here, and here).

Trump has insinuated that Powell is trying to undermine him politically. He has also begun saying he wants lower rates so the government can pay less in interest on the $9 trillion it has to refinance this year.

In the April 17 Digest, we predicted that Trump's attacks would ramp up if the Fed didn't cut rates. From that Digest...

The longer Powell goes without suggesting more rate cuts are on the table, the greater the risk of more market volatility this year – and, from the looks of it, the more Trump will increase his criticism.

Well, we were right. Trump has moved on to name-calling, labeling Powell as "stupid" in recent comments.

This week, the president took it a step further – sending Powell a chart listing the interest rates of 44 different countries (34 of which have lower rates than the U.S.). This is real and was shared at a press conference by White House Press Secretary Karoline Leavitt yesterday...

In case it's hard to read on your screen, here's what Trump wrote to the Fed chair:

Jerome – You are, as usual, "too late." You have cost the USA a fortune – and continue to do so – you should lower the rate – by a lot! Hundreds of billions of dollars being lost! No inflation.

Trump has been calling for the Fed to cut rates by a full percentage point. But in this letter, he sought a federal-funds rate between 1% and 2%. That would be about 10 different 25-basis-point cuts from today's fed-funds range between 4.25% and 4.5%.

The Fed isn't giving in just yet...

Markets are pricing in only a 20% chance of a rate cut at the July 30 meeting, with a 73% chance that the first rate cut comes in September. And the Fed, a Powell-led one, is only expecting to cut rates to around 3% in the long term.

But by then, Powell may not be the "voice" of the Fed... or at least the one that the market pays attention to.

In an interview yesterday, Treasury Secretary Scott Bessent said that Powell's successor could be named within "weeks."

And Trump over the weekend said he'd "love" if Powell decided to step down before his term as chair is up in May 2026. He added that Powell's replacement will be someone who will definitely cut rates. And he has narrowed his list of choices to three or four people.

Last month, we wrote that Bessent and former Fed official Kevin Warsh are two of the candidates, and yesterday Bessent confirmed that he'd take up the job if asked by Trump.

A "shadow" Fed chair – one who says they will lower rates when they're in office starting in 2026 – would likely be the person the markets would listen to in Powell's final months. The lame-duck chair might delay rate cuts, but it would only delay Trump's inevitable wish.

Whoever makes the announcement, investors can increasingly expect rates to be meaningfully lower by next summer.

This could lead them to buy up risk assets like stocks and bitcoin, as they expect more monetary "juice" coming in the form of lower borrowing costs.

The market's "animal spirits" could return.

For now, Powell is standing firm and keeping that "rocket fuel" (in the words of Trump) away from the economy.

But in today's remarks, even he signaled an openness to lowering rates in the second half of this year.

A congressional all-nighter...

Senators talked, negotiated, and voted through the night on amendments to the "big, beautiful" tax and spending bill that Trump has wanted to sign by this Friday, July 4.

The Senate held 49 votes on the measure, evidently setting a new "vote-a-rama" record by surpassing the 44 votes held in one day in 2008.

This afternoon, Vice President JD Vance broke a tie to approve the 887-page bill in the Senate. Three Republicans joined all 47 Democrats in opposition. It now goes back to the House, which narrowly passed a different version in May, for another vote.

In broad strokes, the bill extends Trump's previous tax cuts that were due to expire... adds some restrictions and cuts to Medicaid and food stamps, and "green" energy tax credits... and increases spending on defense and immigration enforcement.

The price tag? The bill would raise the debt limit by $5 trillion, to a number north of $40 trillion.

In the coming days, we'll parse the adopted bill for details and the inevitable surprises we haven't heard about quite yet. And we'll keep you posted about any action from the House.

Meantime, the 'big, beautiful breakup' continues...

The world's richest person, Elon Musk, the former head of Trump's Department of Government Efficiency ("DOGE") and a now-former Trump supporter, has renewed his criticism of the bill – which will raise the debt ceiling by another $5 trillion.

Late yesterday, Musk posted on X that the bill amounts to "DEBT SLAVERY." I (Corey McLaughlin) don't think he's wrong, though the same can also be said for plenty of other spending raises by Congress over the decades.

Musk also vowed to fundraise against Republicans who vote for the bill in their future political races.

In response, Trump renewed a threat to cut Musk's government subsidies and contracts (involving Tesla, SpaceX, and Starlink). As a further jab, he told reporters today that he could ask DOGE to look into it.

As they've done during other highlights of the public spat between Musk and Trump, Tesla (TSLA) shares fell today... by roughly 4%.

As for the rest of the market today...

The major stock indexes were mixed... The small-cap Russell 2000 Index and the Dow Jones Industrial Average gained about 1%. The benchmark S&P 500 Index changed little, and the tech-heavy Nasdaq Composite Index dropped slightly... weighed down in part by Tesla's sell-off.

Bond yields remained relatively steady, with the 10-year Treasury close to 4.25%. The CBOE Volatility Index ("VIX") didn't move significantly either, measuring close to 17 once again. And gold, after a small pullback in the past two weeks, gained about 1% for the second straight day.

Diamond's Edge Live Tomorrow Still not sure what a "head and shoulders" pattern is? Or what it might signal about a stock, sector, or the broad market? Tomorrow morning, Ten Stock Trader editor Greg Diamond will share a special educational show about how to decode stock charts in minutes... from simple technical patterns to basic trend-line analysis and other principles of technical analysis. Here's a direct link so you don't miss this free video. It will begin at 8:45 a.m. Eastern time tomorrow... In the meantime, you can learn more about Greg's trading strategy at TenStockTrader.com... And, as always, Ten Stock Trader subscribers and Stansberry Alliance members can find all of his analysis and trade recommendations right here.

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In today's mailbag, more feedback on Dan Ferris' Friday essay... and thoughts on yesterday's Digest, which discussed navigating a stock market that is back at all-time highs... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"Good day, I have taken advantage of your advice on gold months ago. I've followed your advice on silver a few days ago. I think these are indeed safety belts for the USD downturn and stocks being on the high side. Thanks." – Subscriber Steve B.

"Corey, Good advice in the 6/30/2025 Digest. It feels like we are in a 'push-pull' or seesaw action in the market right now so the best thing to do is tread lightly.

"However, I feel that by year-end 2025 President Trump's programs will start to even out and the economy and stock and bond markets will be skyrocketing or at least be starting to. Lowering interest rates are necessary right now to be part of the overall recovery of the mess left by the previous administration." – Subscriber Michael U.

All the best,

Corey McLaughlin and Nick Koziol
Baltimore, Maryland
July 1, 2025