Trump vs. Powell, who will dominate the global market this week?

With Trump's return to the White House, investors are closely watching how his policies will impact the Federal Reserve's subsequent inflation control and interest rate cut expectations. Although policies like "Star Gate" have propelled the S&P 500 index to achieve its first annual high, and the lack of immediate tariff measures has provided temporary relief to the bond market, concerns are growing that the upcoming first FOMC meeting of the year may bring changes to U.S. stocks and bonds, potentially triggering global market turbulence.

This Wednesday, Powell may remind the market who the true leader is during his speech. If the Federal Reserve reaffirms its consistent data-dependent stance and chooses to delay interest rate cuts, it could hinder the continued rebound of U.S. stocks while simultaneously helping to alleviate the decline in the bond market.

According to Bloomberg, the market widely expects the Federal Reserve to maintain the interest rate at 4.25%-4.50% during this week's meeting. Policymakers believe that the economy has not yet made "sustained positive progress" on inflation, and the uncertainty surrounding the government's tariff policies poses an upward risk to inflation, which has become a key factor for the Fed's pause.

Trump has indicated that he will pressure the Federal Reserve to cut interest rates to accelerate U.S. economic growth. Empower Chief Investment Strategist Marta Norton pointed out, Powell has consistently emphasized the independence of the Federal Reserve, but Trump can influence Fed decisions through fiscal policy.

Katie Nixon, Executive Vice President and Chief Investment Officer of Northern Trust Wealth Management, stated, Trump's policies will affect Powell's decisions, and the market will closely monitor every speech by Trump, which may trigger market volatility.

Investors are also concerned about the impact of Trump's policies on corporate earnings. While tax cuts and deregulation may boost profits, they could also raise market expectations, setting higher thresholds for companies.

Norton noted that corporate earnings and their ability to meet high expectations are crucial for stock market performance this year. At the same time, investors need to weigh earnings expectations against valuation pressures, the latter of which may be influenced by rising U.S. Treasury yields under the Fed's high interest rate policy:

Higher yields will ultimately lower valuations, but if earnings growth is strong, it could drive stock prices up, leading to a contest between valuation and earnings.

Ashok Bhatia, Co-Chief Investment Officer of Fixed Income at Neuberger Berman, stated:

This year, the Federal Reserve may cut rates twice, or it may only cut once... If the Fed really does this, combined with the stabilization of the deficit, it would be a quite strong outcome for the bond market.

Mark Malek, Chief Investment Officer at Siebert Financial, pointed out, the market is currently reacting to every statement from the Trump administration, indicating that traders have not yet adapted to the new rhythm:

This marathon-like game has just begun.

Risk Warning and Disclaimer

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