Firing of Fed Governor Heads to Court

For the week ending 29 August 2025

As of midday Friday, global equities were little changed on the week, though the S&P 500 closed above 6,500 on Thursday — a record high. The yield on the 10-year US Treasury note fell 3 basis points to 4.23% from a week ago, while the price of a barrel of West Texas Intermediate crude oil rose $0.90 to $64.40. Volatility, as measured by futures contracts on the Cboe Volatility Index (VIX), rose to 16.65 from 14.60 last Friday.

MACRO NEWS

Trump fires Fed Governor Cook

On Monday, US President Donald Trump made good on his threat to fire US Federal Reserve Governor Lisa Cook after it was revealed that bank documents show she claimed two homes as primary residences within weeks of obtaining mortgages on those properties. Late Thursday, similar accusations were leveled against Cook by Federal Housing Finance Agency Director Bill Pulte related to a property in Cambridge, Massachusetts. On Thursday, Cook sued Trump, claiming he has no power to remove her from office. A hearing on the matter was scheduled in Federal court in Washington, DC on Friday morning. Amid concerns that Trump’s actions to remove Cook threaten the Fed’s independence, the long end of the Treasury yield curve steepened modestly this week, though most of the move was dictated by lower rates in the front-end of the curve rather than a backup in long yields.

Q2 US GDP revised up

The US economy grew in the second quarter at a faster pace than first estimated, growing at a 3.3% annual pace, up from an earlier 3% estimate. Consumption grew 1.6%, revised up from 1.4%, while final sales to private domestic purchasers were revised up to 1.9% from 1.2%. Business fixed investment expanded at a 5.7% annualized rate, sharply higher than the 1.9% first estimate. With this release, the US government has begun distributing gross domestic product data on public blockchains, another avenue for publishing economic data. The government's effort initially targets nine blockchains and involves putting a cryptographic hash of the data on those blockchains to verify its integrity.

French government’s days look numbered

French PM François Bayrou called for a confidence motion on 8 September over the government’s budget. Bayrou leads a minority government and is unlikely to survive the motion unless a budget agreement is unexpectedly cobbled together in the coming week. French debt traded wider than Italy and Greece in certain maturities in the wake of the announcement, with French 30-year government bonds trading at their highest yields since the depths of the European debt crisis.

QUICK HITS

In July, the Fed’s preferred inflation measure, the personal consumption price index, rose 0.2% from the month before and 2.6% year over year, while the core measure rose 0.3% and 2.9%, respectively, all in line with expectations. Personal income rose 0.4% and spending rose 0.5%. Futures markets price in a roughly 85% chance of a quarter-point rate cut at the Fed’s 17 September meeting.

White House National Economic Council Director Kevin Hassett said on Monday that it’s possible the government will take more equity stakes in firms in the wake of the US government’s acquiring a 10% stake in Intel. He added that the administration is “not in the business of picking winners and losers.”

European Central Bank President Christine Lagarde said US tariffs are having only a small impact on European economic growth and that companies are adjusting to the levies. Europe's labor market has proven surprisingly resilient, she added.

After the European Union struck a trade deal with the US, German business confidence rose to the a three-and-a-half-year high in August, according to the Ifo Institute.

Canada will drop many of its retaliatory tariffs against the US on September 1, Prime Minister Mark Carney announced this week. Ottawa does not expect the US to drop all of its tariffs but is seeking carveouts for five strategic sectors: steel, aluminum, autos, copper and softwood lumber, the Financial Times reported.

The US Congressional Budget Office projects that if tariffs remain in effect over the next decade, US budget deficits would be reduced by $4 trillion.

On Saturday at Jackson Hole, Bank of England Governor Andrew Bailey said Britain faces an “acute challenge” from its weak underlying economic growth and a drop in the number of workers since the pandemic. This increases the need for efforts to boost economic productivity, Bailey told the gathering.

Trump said China must ensure the continued flow of rare earths magnets or face tariffs as high as 200%.

With progress toward a peaceful settlement between Russia and Ukraine stalled, President Trump renewed threats of harsh sanctions on Russia and raised the possibility of an “economic war.” German Chancellor Friedrich Merz said Thursday that a meeting between Russian President Vladimir Putin and Ukrainian President Volodymyr Zelensky is impossible after Russia launched a large-scale drone and missile strike early Thursday against Kiev, killing at least 19.

Preliminary US durable goods orders fell a smaller than expected 2.8% in July and rose 1.1% after stripping out aircraft orders.

President Trump threatened to impose fresh tariffs and export restrictions on advanced technology and semiconductors in retaliation against other nations’ digital services taxes that have hit American technology companies.

The Senate Banking Committee will hold a confirmation hearing next Thursday on the nomination of Stephen Miran to the Fed’s Board of Governors.

Federal Reserve Bank of New York President John Williams said this week that he is “pretty optimistic” on the outlook for the economy and that the September FOMC meeting is “definitely live.” At some point, he added, it will be appropriate to move rates down.

50% tariffs on goods imported into the US from India came into effect on Wednesday.

France, Germany and Britain have started proceedings to reimpose UN sanctions on Iran over its nuclear program. The move is a 30-day process that will likely restore international sanctions against Tehran. The three nations triggered the "snapback" mechanism from Iran's 2015 nuclear deal by sending a letter to the UN Security Council. Iran called the move “legally baseless.”

Fed Governor Christopher Waller, who is on President Trump’s list of potential replacements to succeed Chair Jerome Powell next year, said Thursday he favors a 0.25% rate cut, at the September FOMC meeting and that if next week’s August employment report shows substantial weakening, he could support a half-point cut.

The Canadian economy contracted at a worse-than-expected annualized 1.6% rate in Q2 on slumping exports and business investment.

EARNINGS NEWS

With about 98% of the constituents of the S&P 500 Index having reported for Q2 2025, blended earnings per share (which combines reported data with estimates for those that have yet to report) show that earnings rose around 12% compared with the same quarter last year, according to data from FactSet. Blended sales rose 6.4% year over year. 81% of companies have beaten consensus estimates, the highest percentage since Q3 2023.

THE WEEK AHEAD

Monday: Ex-US manufacturing PMIs: eurozone unemployment; US closed for Labor Day

Tuesday: Eurozone CPI; US manufacturing PMIs

Wednesday: Ex-US services PMIs; Australia Q2 GDP; eurozone PPI; US JOLTS

Thursday: Eurozone retail sales; US trade balance, unit labor costs, services PMIs

Friday: UK retail sales; eurozone GDP; US nonfarm payrolls

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Sources: MFS research, Wall Street Journal, Financial Times, Reuters, Bloomberg News, FactSet Research.