“The Fed is supposed to be independent. It is not supposed to play politics and Trump is risking reducing the credibility of the Fed and which has an impact obviously on the bond market, on the currency markets, on all the financial markets by continuing to bash Powell,” says Ed Yardeni, Yardeni Research.

Let us first talk about Powell and it seems like Trump has not quite made up his mind given that he himself hired him at one point in time and just so much back and forth and the way the markets have been reacting to it, it is quite shocking.
Ed Yardeni: It is. Nothing positive is being accomplished by the president, constantly beating up on Powell, unless the plan is to weaken the dollar because almost daily now the president attacks Powell and when that happens the dollar tends to get weaker and as we know the president would like to see a weaker dollar but other than that it is a very messy situation.

The Fed is supposed to be independent. It is not supposed to play politics and Trump is risking reducing the credibility of the Fed and which has an impact obviously on the bond market, on the currency markets, on all the financial markets by continuing to bash Powell.

I hope this stops, but it does no look like it will. But at the same time, it looks like that President Trump realises he really does not have the power to fire Powell. And even if he did that, he is going to have a committee, a monetary policy committee, the Federal Open Market Committee that is not going to be terribly cooperative.

Where do you see dollar index headed and what factors could actually be at play?
Ed Yardeni: The dollar index is not a trade weighted index. It is a fixed weight. And it basically includes the euro has the biggest weight, more than 50%, the yen is in there, and a few other currencies are in there. And to a large extent the weakness in the DXY, in the dollar index, has reflected strength I should say in the euro.

Some of this has to do with global investors deciding that they are underweight euro and some money went into Europe and as a result that tend to weaken the dollar, but the dollar still I mean, it is down about 10% since the beginning of the year. It was very strong at the beginning of the year. It is still relatively strong. So, I am not particularly concerned that there is a lot more downside in the dollar. As an international reserve, the dollar still matters a great deal. We have huge capital markets here, very liquid, very safe. So, I would not get too concerned here about the dollar getting much weaker.

Let us talk about some macros coming in from the US. So, you had the core CPI that was slightly better than expectations. We also had the wholesale price index numbers that are also slightly better than expectation. Do you believe that this is a substantial enough number to now merit a case for a rate cut from the Fed?
Ed Yardeni: Not really. I mean, yesterday’s CPI was warmer than expected. It is getting very close to 3%, not 2% and the PPI today people should be aware that the producer price index includes the prices that companies charge consumers. It does not include imports, unlike the CPI which does include imports.

So, the fact that the PPI was unchanged does not prove that the tariffs are having no impact on inflation and industrial production was stronger than anticipated. It was up 0.1 on manufacturing 0.3 on overall industrial production. These numbers really do not suggest that the Fed should be in any rush whatsoever to lower interest rates and we may not get a rate cut at all this year because the economy continues to demonstrate its resilience.

What Trump’s tariffs have done has not been really to increase inflation, but to keep inflation from continuing to moderate down to 2%. Inflation may very well be stuck closer to 3% for a few more months because of the tariffs, without them it might have been already down to 2%.