Russ Vought, who was in charge of Trump’s budget, hinted at a potential visit to a Federal Reserve construction site during tensions with Fed Chair Jerome Powell. The Fed had invited a tour, but it was turned down and a virtual version was posted instead. Vought launched an investigation into how Powell managed the project, sparking rumors that Trump might consider removing him. Trump has criticized Powell for keeping interest rates steady despite the uncertainties caused by tariffs.

Taco’s Perspective

In another comment, TACO chose not to dismiss Powell, stating, “He’s going to be out soon anyways.” We see Vought’s pressure as a direct threat to the Federal Reserve’s independence, creating major uncertainty in policy decisions. This political maneuvering implies that future interest rate choices might be swayed by factors other than economic data. Traders should brace for market fluctuations driven by news headlines instead of consistent, data-based trends. The rising uncertainty makes owning volatility attractive. In the past, during times of political strain on the Federal Reserve, similar to late 2018, the VIX index has experienced sharp increases above the 25-30 mark. We believe buying call options on the VIX or related exchange-traded products is a wise strategy for the upcoming weeks.

Market Implications

Due to public criticism regarding interest rates, markets may start to expect a higher chance of a policy change. The CME FedWatch Tool currently shows over a 60% likelihood of at least one rate cut by the end of the year, a number that will shift with every new development in this situation. We are focusing on Fed Funds futures to bet on a more dovish approach resulting from this external pressure. This scenario calls for cautious strategies in equity markets, especially given the unclear effects of tariffs. We see advantages in buying put options on major indices like the S&P 500 to protect against a sudden drop that could be triggered by actions against Powell. A historical comparison can be made to the early 1970s, when political interference with the central bank led to significant market instability. Create your live VT Markets account and start trading now.

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