{"id":227871,"date":"2025-07-25T09:45:00","date_gmt":"2025-07-25T13:45:00","guid":{"rendered":"https:\/\/ibkrcampus.com\/campus\/?p=227871"},"modified":"2025-07-28T03:45:06","modified_gmt":"2025-07-28T07:45:06","slug":"above-the-noise-fed-chair-rising-prices-and-polic-winners","status":"publish","type":"post","link":"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/securities\/macro\/above-the-noise-fed-chair-rising-prices-and-polic-winners\/","title":{"rendered":"Above the Noise: Fed chair, rising prices, and policy winners"},"content":{"rendered":"\n

Key takeaways<\/h2>\n\n\n\n

Fed independence matters<\/h3>\n\n\n\n

If markets perceive the Federal Reserve (Fed) as an extension of the executive branch, the consequences could be severe.<\/p>\n\n\n\n

Tariff-impacted prices<\/h3>\n\n\n\n

Prices are starting to rise in tariff-impacted categories like major appliances, sporting goods, toys, and household linens.<\/p>\n\n\n\n

Resilient markets<\/h3>\n\n\n\n

Markets continued to remain steady, but some industries could win or lose under the new One Big Beautiful Bill. <\/p>\n\n\n\n

Austin Powers: Only two things scare me, and one is nuclear war.<\/p>\n\n\n\n

Basil Exposition: What\u2019s the other?<\/p>\n\n\n\n

Austin Powers: Excuse me?<\/p>\n\n\n\n

Basil Exposition: What\u2019s the other thing that scares you?<\/p>\n\n\n\n

Austin Powers: Carnies.<\/p>\n\n\n\n

This month, I learned what truly scares me, and it\u2019s not carnies. I enjoy carnivals. What unsettles me is the growing politicization of the US Federal Reserve<\/a> (Fed).<\/p>\n\n\n\n

Saying that the Fed\u2019s independence is essential shouldn\u2019t be controversial. One of its core responsibilities is to maintain price stability and anchor inflation<\/a> expectations. If markets begin to perceive the Fed as an extension of the executive branch rather than an independent institution focused on its dual mandate, the consequences could be severe.<\/p>\n\n\n\n

We don\u2019t have to look far for a cautionary tale. In the 1970s, President Nixon\u2019s pressure on Fed Chair Arthur Burns contributed to a period of elevated inflation and persistently high interest rates<\/a>, conditions that weighed heavily on US risk assets for years.1<\/a><\/sup> I was born in that decade, but I have no desire to relive it. Besides, I\u2019ve long since lost my polyester leisure suits!<\/p>\n\n\n\n

Fortunately, President Trump denied reports that he plans to fire Fed Chair Jerome Powell. Here\u2019s hoping that denial holds.<\/p>\n\n\n\n

\u201cSmashing, groovy, yay capitalism!\u201d<\/p>\n\n\n\n

It may be confirmation bias but\u2026<\/strong><\/h2>\n\n\n\n

\u2026 prices are starting to rise in categories affected by tariffs<\/a>, such as major appliances, sporting goods, toys, and household linens, to name a few.2<\/a><\/sup> We\u2019re likely still in the early stages of these price increases.<\/p>\n\n\n\n

Fortunately, the core Consumer Price Index (CPI) remains stable, as the pace of service price growth continues to slow.3<\/a><\/sup> The rising prices of tariff-impacted goods, in our view, should be seen as a one-time price shock rather than the onset of a prolonged inflationary trend.<\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

Since you asked<\/strong><\/h2>\n\n\n\n

Q: Haven\u2019t you always said that elections don\u2019t matter as much for markets as investors believe? But aren\u2019t there clear winners and losers in the One Big Beautiful Bill<\/a>?<\/strong><\/p>\n\n\n\n

A: Thanks for listening! My point has always been that election outcomes don\u2019t fundamentally alter the trajectory of the broad stock market. Just look at the S&P 500 Index returns from the past three inauguration dates through mid-July:4<\/a><\/sup><\/p>\n\n\n\n