In Japan, Sanae Takaichi won the Liberal Democratic Party’s leadership election last weekend, positioning her to become the country’s first female prime minister.
Markets reacted swiftly and positively, buoyed by expectations of renewed fiscal stimulus and a weaker yen supporting exporters.

In Europe, meanwhile, France is once again facing political turbulence. Prime Minister Sébastien Lecornu abruptly resigned on Monday, less than a month into his term and only 14 hours after presenting his cabinet. President Macron has given him until Wednesday to form a new cabinet, underscoring the fragility of France’s political landscape.

Markets: opposite reactions

• Japan: equities surged around 5 %, led by export-oriented stocks, while bond yields climbed and the yen weakened further as investors priced in a more expansionary fiscal policy.

• France: The CAC 40 index fell nearly 2 %, and French bond yields moved higher, reflecting rising political risk and the addition of a risk premium to sovereign debt.

My View: With limited economic data available, partly due to the US government shutdown, and the earnings season yet to begin, political developments have taken center stage in driving short-term market sentiment.
Typically, politics act only as temporary market movers. Yet in the current vacuum of hard data, they have become the dominant narrative.

In Japan, expectations of a large fiscal push could clash with already elevated public debt levels, potentially putting upward pressure on borrowing costs. A weaker yen may provide support to exporters, but given the market’s rally to record highs, I prefer to stay cautious and refrain from new active positions in the region for now.

In France and across Europe more broadly, the challenges run deeper. The continent faces a confluence of political, economic, and market headwinds. As discussed in my blog article “Europe – The Struggling Candidate”, I see little room for meaningful upside and expect the negative momentum to persist — slowly but steadily.
Within Europe, I maintain a selective approach, focusing on valuation discipline and sustainable dividend yields rather than broad market exposure.

The US government enters its second day of shutdown with a deepening political gridlock. Prediction markets currently see the shutdown lasting nearly two weeks, broadly in line with history. Bank of America data shows the average government shutdown since 1990 has run its course in about 14 days. The S&P 500, meanwhile, has historically gained about 1% in the week before and after such episodes

Yesterday, despite the shutdown released ADP private payroll report showed a decline of 32’000 jobs versus expectations for a 45’000 gain. Today, markets face the risk of a data blackout if the shutdown persists. Key reports from the Bureau of Labor Statistics may not be released on schedule. That would leave the Federal Reserve “flying blind” just as inflation and labor market signals are diverging.

Markets: shrugging of all negative news across the globe

• Global equity indices trading all in the green

• US Bond yields slightly up after yesterday's drop with the 10-year yield at 4.12%

• US dollar tending sideways

• Gold prive moves below the USD 3’900/oz level

• Cryptos join the risk-on mode with Bitcoin price back close to 120’000 level.

My View:

Markets seem turbocharged by FOMO (“Fear Of Missing Out”) trading on autopilot, dismissing the shutdown, shrugging off weaker jobs data, and continuing their march higher. This underscores that markets rarely see shutdowns as more than short-term noise. History supports this resilience: shutdowns are rarely market-moving events.

The rosy narrative dominates, despite economic data shows some reddish flags. Much of the future success is already priced in today. Political dysfunction and global turmoil are treated as background noise.

This detachment can last longer than many expect, but when momentum finally meets an unwelcome surprise, the adjustment could be sharp. For now, the shutdown is little more than a headline, and the market remains turbocharged.

The US government has officially entered its first shutdown in nearly seven years — and the third during Donald Trump’s presidency. Democrats and Republicans have shown no signs of resolving their deadlock.
Roughly 750,000 federal workers are at risk of furlough, including employees at the Bureau of Labor Statistics. That means September’s crucial jobs report, scheduled for release this Friday, will likely not be published.

Markets: remain calm and shrugging of the event

• US equity Futures slightly negative

• US Bond yields saw only a brief jump and trading lower now

• US dollar lost and now on the rise

• Gold new highs almost touching USD 3’900/oz

• Crypto prices higher based on the event news

My View: Another government shutdown is hardly unprecedented, markets have learned to treat these events as temporary disruptions rather than existential risks. The last major shutdown in late 2018 stretched for 35 days, the longest in US history. That episode ultimately produced only modest lasting economic damage
The true impact lies not in the shutdown itself but in the data blackout it creates. With the Bureau of Labor Statistics furloughed, the September jobs report may not be available. This leaves the Federal Reserve “flying blind” at a critical juncture, where inflation risks and labor market weakness are pulling in opposite directions.

For now, investors are ignoring the noise, riding the ongoing AI-driven momentum trade. But this complacency could be tested if the shutdown is lasting longer. The missing data could feed uncertainty into the Fed’s next decision cycle.
With the September turbocharged rally the equity valuation feels increasingly disconnected from fundamentals.

Shutdowns rarely move markets in the short run. But with a longer shutdown and the absence of reliable data may well become the story, pushing volatility higher once investors realize they are navigating without instruments and put their focus back on the real facts on valuations. Soon the earnings season will kick-off and gives a next indication.

Republicans and Democrats remain at an impasse over federal funding, raising the threat of a shutdown just as the 2026 fiscal year begins.
The top four congressional leaders are scheduled to meet with Donald Trump at the White House on the eve of the deadline. Without a short-term spending bill, federal funding will expire, forcing the government to shut down.

Such an outcome would immediately disrupt the release of critical US economic data. From job market data to inflation reports, the flow of statistics the Federal Reserve relies on to calibrate monetary policy could be interrupted.

Markets: More signs of resilience

• US equities: AI-momentum trade continues

• US Bond yields down

• US dollar loosing ground against major currencies

• Gold new highs now above USD 3’800/oz

• Crypto prices climb with regained risk-on mode

My View: Another potential US government shutdown is hardly breaking news. We’ve seen this movie before, and markets usually shrug it off. The risk is not the shutdown itself but the data blackout it could trigger. Key economic data may be delayed, leaving the Fed “flying blind” at a moment when inflation risks and labor market weakness are pulling policy in opposite directions.

For now, investors couldn't care less. The AI-driven momentum trade picked-up again after last week’s brief pause. The narrative has taken on the shape of a perpetuum mobile:
- AI providers (e.g., OpenAI) require massive cloud capacity.
- Cloud providers (e.g., Oracle) in turn buy chips from semiconductor leaders like Nvidia.
- Chipmakers reinvest into AI ventures, fueling the next cycle.

Round and round it goes, a feedback loop that, by definition, cannot last indefinitely. Still, the rally continues to defy logic and valuation gravity. As long as investors and speculators remain convinced by this narrative, or “brainwashed” by it, markets will likely keep pushing to ever more exuberant levels.

Federal Reserve Chair Jerome Powell said Tuesday that weakness in the labor market is now outweighing concerns about stubborn inflation, leading to last week’s decision to cut the Fed’s key interest rate. Powell noted that recent job growth has slowed sharply, averaging only around 25,000 per month over the past three months. “The downside risks to employment have risen,” he warned.

Powell further emphasized that equity valuations appear “fairly highly valued” and stressed there are no guarantees for lower interest rates going forward — policy decisions will remain data-dependent.

The next key releases are due this week: jobless claims on Thursday and the Fed’s preferred inflation gauge, the PCE price index on Friday. Both could significantly influence expectations for further easing.

Markets: US markets take a pause

• US equities: the rally seems to take a pause

• Gold is holding firm below latest record highs

• Bond yields tending sideways

• Crypto prices advance slightly

My View: Markets are, once again, choosing to focus on liquidity and rate cuts while overlooking the Fed’s explicit warnings. Powell’s remarks highlight a delicate balance: inflation has not been fully defeated, while the labor market is deteriorating more rapidly than many expected. This could still lead into a stagflation scenario.

By stressing both the weak job market and no guarantees on rates, Powell is signaling that investors may be too complacent. The divergence, between Fed caution and market exuberance, creates a fragile setup. Short-term momentum may still carry equities higher, but valuations are stretched and policy risks are rising. The next 48 hours could be decisive: fresh jobless claims and PCE inflation could either validate the optimism or serve as a wake-up call.

Last week, the Federal Reserve (Fed) delivered a quarter-point rate cut, sparking renewed enthusiasm across equities. Investors are now speculating on further easing, with attention shifting to Fed Chair Jerome Powell’s upcoming remarks.

However, there is a wide dispersion of views within the Fed: 19 members in total, 10 support two rate cuts by year-end, 9 argue for one cut, none or even higher rates.

For 2026, the Fed projects a single quarter-point reduction, while traders are pricing in two to three more rate cuts next year. This highlights a clear gap between market expectations and a significantly more conservative guidance by Fed.

Markets:

• US equities: S&P 500, Nasdaq, Dow, and small-caps index at record highs.

• Gold on record high with the gold price currently trading at USD 3’770/oz

• US 10-year yields climbed from 4.0% to 4.15% in less than a week

• Cryptos negative performance since the Fed’s move

My View: Wall Street is walking a narrow path — between resilience and denial. The rally reflects confidence in the Fed’s support and in technology’s transformative momentum, with Nvidia and AI peers driving sentiment.

Yet, investors appear willing to ignore significant risks: political instability, tariffs, and the possibility that Powell may dampen expectations. September’s strong performance, despite its seasonal reputation for weakness, adds to the sense of complacency.

History reminds us that markets often display peak confidence just as caution is most warranted. The current surge looks less like recognition of fundamentals and more like denial of looming risks. Inflation and labor market data will be decisive for the Fed’s next steps, and any shift in tone — or renewed geopolitical flare-ups — could quickly destabilize this fragile equilibrium.

Last night the Bank of Japan (BoJ) sent out some hawkish tone, even the BoJ left its policy rate unchanged at 0.5%, in line with expectations. But, the central bank delivered an unexpected signal on policy normalization, announcing plans to begin gradually selling down its enormous holdings of equity ETFs, valued at more than 75 trillion yen (around USD 508 billion).
BoJ accumulated the funds as part of its monetary easing program that ended last year.
In a further hawkish sign, two board members dissented, voting for a rate hike. The 7–2 split keeps the door wide open for a possible increase at the next meeting in late October.

Markets: Japan assets take some hit.

• Japanese equities reacted negatively: the Nikkei 225 Future slid more than 1.6%.

• Bond yields climbed, with the 10-year JGB yield rising to fresh highs above 1.64%.

• The yen saw some intraday volatility but settled with modest up-moves against major pears

My View: The market impact from the planned asset sales will likely remain limited, given the BOJ intends to sell only around JPY 330 billion (USD 2.2 billion) annually. Still, this shift removes a key tailwind: instead of persistent buying support, markets will face a subtle drag from steady selling.

More importantly, is another message: we are no in the same post-financial or pandemic crisis regime where all major central banks pushed rates lower in unison. The global landscape is fragmenting — some central banks are easing, while others, like the BOJ, are preparing to normalize. For investors, this means a more nuanced and selective approach is required when deciding where to allocate capital.

I do not intend to allocate exposure to the Japanese markets in the near future.

Tonight, all eyes are on the Federal Reserve. Consensus expects a 25bps cut, bringing the Fed Funds rate down to 4.25%.

Markets: a nine-day winning streak ended yesterday

• Nasdaq Futures trading flat

• US 10-year yield is slipping towards 4.0%

• US dollar continues to drop (against Swiss Franc below 0.79)

• Gold: pulled back after reaching fresh record highs above USD 3’700/oz.

• Cryptos: Moving largely sideways.

• Volatility: The VIX index remains at low levels.

My View: Markets are extremely positioned going into the decision. Positioning data shows big bets, highlighted by an increasing and unusually high put/call ratio. A major institution even went so far to recommend their clients add exposure before the Fed’s announcement. That’s a surprising call, given the backdrop: we are coming off an eight-day winning streak in equities, the speculative sentiment is running hot, such an environment increases the likelihood of a setback, especially around a key policy event.

The press conference with Jerome Powell will be the interesting to follow. Investors will parse every word for clues about the future easing path. A 25bps cut is already priced in, what matters is the guidance.

Could this turn into a classic “buy the rumor, sell the fact” moment? With sentiment extreme, a take-profit wave following the announcement would not surprise me.

After a quiet weekend and a mixed set of economic headlines, investors show little hesitation in continuing the Tech Party.
France got a downgrade by Fitch to A+ from AA- with a stable outlook, following latest political challenges in combination with the budget.

In China, the economic data with retail sales and industrial activity came in lower as analysts expected while house prices continue to slid.

Markets:

• Equities: Most major indices are trading higher.

• Bonds: Yields move lower across the board.

• FX: The US dollar hovers near recent lows.

• Commodities: Gold extends its rally, climbing more than +1% together with other metals and oil.

• Cryptos: do not extend their latest up move

My View: Momentum may well carry markets into midweek, and possibly beyond. The real test could be on Wednesday, when the Fed announces its rate decision and outlines the outlook. The market is expecting a dovish cutting path. Until then, investors appear happy to ride the wave, brushing aside underlying risks in favor of speculative momentum.

Consumer sentiment further deteriorated in September, reaching its lowest level since May. The University of Michigan’s preliminary reading of its Survey of Consumers fell to 55.4, well below the 58.1 expected by economists and down from 58.2 in August.

While inflation expectations remained stable, they are still elevated: year-ahead inflation was seen at 4.8%, unchanged from August but above July’s five-month low of 4.5%.

Markets: investors ignore negative data

• US equities mostly up led by tech

• US 10-year yield quickly touched 4.08%

• Gold: continues its uptrend trading around USD 3’650/oz

• US dollar: regains some ground

• Cryptos: follow the risk on stance

My View: This combination of weakening sentiment and sticky inflation highlights the challenging backdrop for households, as purchasing power remains pressured and confidence subdued.

Despite the negative signal, equity indices remain supported by speculation of policy easing, with traders betting that the Federal Reserve will prioritize growth risks over inflation persistence.

Markets are ignoring negative data points and trading as if the consumer slowdown does not matter. This is a sign of speculation, where short-term positioning outweighs fundamentals. History has shown that such disconnects often increase fragility — when sentiment finally shifts, corrections can be sharp.

The August CPI came in mixed: headline prices rose 0.4% MoM (above 0.3% expected) but annual inflation held at 2.9%, in line with forecasts. Core CPI matched estimates at 0.3% MoM / 3.1% YoY.

Yesterday’s softer PPI and a jump in jobless claims (263k vs. 235k expected) reinforced expectations that the Fed will cut rates next week. Markets see a 25bps cut as certain, with a 50bps cut still on the table.

Markets: Investors rate speculations continue

S&P 500: trading at record highs

• US Futures gain 0.2%

• US 10-year yield quickly touched 4.0%

• Gold: a quick bounce before giving up some gains of recent days

• US dollar: heading south

• Cryptos: give up most of their intraday gains

My View: The Fed’s balancing act continues. Inflation isn’t fully conquered, but some cracks in the labor market are becoming more visible. With the PPI cooling and jobless claims jumping, the central bank seems to have the cover it needs to ease.

A quarter-point cut is almost locked in; a half-point remains a wild card. Markets are pricing in the best-case scenario, hoping for easing policy and expecting a cooling inflation. With this speculation, the rally might have room to continue. However, with such speculative bets, the risk of disappointment is rising.

The producer price index (PPI) for August surprised to the downside, with wholesale prices falling 0.1%, while economists had expected a 0.3% increase. Core PPI, which excludes food and energy, also slipped 0.1% versus forecasts for a 0.3% gain.

Markets: US markets are pushing into record territory, supported by easing inflation signals and renewed AI momentum after the Oracle news flow - European equities continue to lag, weighed down by sluggish growth dynamics and lingering political and fiscal uncertainties.

• S&P 500: trading at record highs

• US 10-year yield: 4.06%

• Gold: higher

• US dollar: weaker

• Cryptos: up

My View: Speculation over a September rate cut is intensifying. With PPI surprising to the downside, bets are increasingly shifting toward the possibility of a 50bps cut.

All eyes now turn to tomorrow’s CPI release. Economists expect a 0.3% monthly increase in both the headline and the core index. If confirmed, annual headline CPI would edge up to 2.9%, while core CPI would remain steady at 3.1%. A result in line with expectations, combined with the recent signs of a cooling labor market, would give the Federal Reserve additional justification to move ahead with a cut in September.

Investors should be prepared for volatility around the release. Even modest deviations from consensus could trigger sharp swings in the market.

France faces renewed political turmoil as a no-confidence vote on Prime Minister François Bayrou comes to the floor. The vote will take place tonight 7.00 CET.

Markets: markets have already started to price in some risks.

• French government bond yields higher with increased risk premium

• French equities lagging broader European indices during recent days

My View: Political uncertainty is once again fueling volatility and putting fiscal stability into question. The French debt issue has returned to the spotlight, and in Europe’s second-largest economy the repercussions stretch well beyond national borders. With debt levels already under scrutiny and fiscal discipline difficult to enforce in a fragile political environment, pressure on French assets is unlikely to ease any time soon.

For the broader European economy, the timing is far from ideal. Growth remains sluggish, confidence fragile, and renewed instability in France risks undermining eurozone cohesion. Until greater clarity emerges, investors should brace for continued swings in both bonds and equities.

I continue to hold a cautious stance on Europe, as the overall economic backdrop remains tilted to the weaker side.

Friday’s jobs report came in much weaker than expected, fueling speculation that the Fed could even deliver a 50 bps cut next week. Nonfarm payrolls rose by just 22,000 (vs. 75,000 expected), while the unemployment rate ticked up from 4.2% to 4.3%.

Markets: Sentiment flipped quickly from recession fears to rate-cut hopes.

• US equities rally today

• 10-year Treasury yield falls to 4.05%

• USD drops further

• Gold surges to fresh all-time highs

• Cryptos stabilized after recent losses

My View: Markets are now almost certain the Fed will ease policy at the upcoming meeting. Yet, several data points due in the next days could reopen the debate on whether such a move is truly warranted. Rate-cut speculation may continue to buoy equities, but this week’s inflation release will be crucial. A stronger-than-expected print could trigger sharp volatility.

The debt topic is moving rapidly back into the spotlight.

In the US, the tariff saga has entered a new phase: courts ruled that a large portion of tariffs imposed this year may have been illegal. If confirmed, this could force Washington to repay billions already collected – just as the government struggles with an already stretched budget and the “Big Beautiful Bill”.

In Europe, fiscal concerns are flaring up again. France’s rising debt is putting renewed pressure on its fragile credit outlook. Across the Channel, the UK budget debate is intensifying, with crucial decisions expected by the end of November.

Markets: long-dated bonds under pressure

• Yields on 30-year bonds in the US, UK, Japan and Europe have surged, with Japanese bonds hitting a record high

• Gold reaches new record level trading at USD 3,550/oz

• Volatility Index (VIX) slightly up in the recent days

My View: Debt and tariff clouds are building on the horizon. This could be a classic “calm before the storm” setup. Unease is growing around both fiscal and monetary policy paths in several major economies.

Markets tend to ignore structural issues, until they can’t. A renewed focus on sovereign debt sustainability or the legal consequences of potential US tariff repayments could quickly shift sentiment and unleash significant turmoil across global markets.

Seasonality adds another layer: September is historically the weakest month for equities. Whether this year will follow the pattern remains to be seen, but the ingredients for volatility are clearly in place.

The debt topic is moving rapidly back into the spotlight.

In the US, the tariff saga has entered a new phase: courts ruled that a large portion of tariffs imposed this year may have been illegal. If confirmed, this could force Washington to repay billions already collected – just as the government struggles with an already stretched budget and the “Big Beautiful Bill”.

In Europe, fiscal concerns are flaring up again. France’s rising debt is putting renewed pressure on its fragile credit outlook. Across the Channel, the UK budget debate is intensifying, with crucial decisions expected by the end of November.

Markets: long-dated bonds under pressure

• Yields on 30-year bonds in the US, UK, Japan and Europe have surged, with Japanese bonds hitting a record high

• Gold reaches new record level trading at USD 3,550/oz

• Volatility Index (VIX) slightly up in the recent days

My View: Debt and tariff clouds are building on the horizon. This could be a classic “calm before the storm” setup. Unease is growing around both fiscal and monetary policy paths in several major economies.

Markets tend to ignore structural issues, until they can’t. A renewed focus on sovereign debt sustainability or the legal consequences of potential US tariff repayments could quickly shift sentiment and unleash significant turmoil across global markets.

Seasonality adds another layer: September is historically the weakest month for equities. Whether this year will follow the pattern remains to be seen, but the ingredients for volatility are clearly in place.

Late Friday, after market close, the US Court of Appeals for the Federal Circuit ruled that most of the tariffs initiated under former President Trump were unlawful. The decision covered “reciprocal” tariffs on several countries, including China, Canada, and Mexico, as well as duties tied to fentanyl trafficking.

The court found that these measures represented an overreach of presidential authority. However, the ruling allows the tariffs to remain in place until October 14, providing the Trump administration with time to appeal the case to the US Supreme Court.

Markets: US markets closed for Labor Day on Monday

• Gold reaches new record level trading at USD 3,470/oz

• US dollar down

My View: After Fed saga comes the tariff saga. The US has entered a new chapter in its ongoing trade tensions. At first sight, the ruling could be seen as supportive for equities, suggesting that a rollback of tariffs may ease costs for businesses and consumers.
However, the situation remains highly uncertain. The Trump administration still has time to appeal, and the ultimate outcome will likely drag on for weeks or months.

For corporates, this uncertainty makes planning strategies difficult as well as for investors. While reduced tariffs could eventually prove supportive for global trade and corporate earnings, the near-term outlook is clouded by legal and political risk.

I see no reason at this stage to adjust allocations. The ETFMandate portfolio strategy remains on hold, not increasing the equity exposure yet, staying disciplined while monitoring how the legal and political process unfolds.

Yesterday’s economic figures released showed a robust growth for the US economy in Q2, expanding at an annualized rate of 3.3%.
Today on the inflation front, the Core PCE price index, the Federal Reserve’s preferred gauge, ticked up to 2.9% YoY, slightly higher than the prior 2.8% and exactly in line with expectations.
The latest job market figures came in broadly stable, pointing to a still solid labor backdrop, after the recent summer weakness.

Markets: Markets did not react on the figures by the reales. After the opening the picture changes a bit

• Nasdaq down 0.4%

• US 10-year yield higher at 4.24%

• US dollar falling with USD/CHF trading below 0.80

• Gold up 0.6% at USD 3,438/oz

My View: Markets have already priced in a September rate cut. Even Fed Chairman Jerome Powell signaled the possibility of an easing move at the Jackson Hole meeting last Friday. Due to political pressure?
But the Fed is now facing a delicate balancing act. Growth remains strong, inflation shows no meaningful progress toward the 2% target, and Core PCE just moved higher again.

Followers of ETFMandate Market Insights know that I have repeatedly raised doubts: is there truly a fundamental case for easing policy right now?

Adding to this, the US money supply (M2) is already expanding again without any easing measures. Cutting rates into a growing economy with sticky inflation risks fueling new imbalances, from speculative excess in financial markets to renewed upward pressure on prices.

In my view, the market is running ahead of reality, betting on easier monetary conditions rather than acknowledging the data as it stands. For investors, this disconnect between expectations and fundamentals is a clear warning signal.

If the Fed resists both political pressure and market demands, and remains on hold, the current “rate-cut optimism rally”could lose momentum quickly.

Nvidia will release its quarterly earnings today after the market close. The stock trades near record highs, supported by strong momentum in AI-related names.

Markets: Nvidia shares trade close to all-time highs. AI-related stocks broadly benefit from the same momentum.

My View: Nvidia’s earnings today represent a major catalyst not only for the stock itself but also for the AI-heavy and tech-focused sectors. Current investor sentiment is clearly bullish, is also favored by the speculative investors, as reflected by the share price trading near record levels. This, however, increases the risk of disappointment.

The most important factor will not just be the headline numbers, but the guidance: Forward sentiment from management, Spending trends in AI infrastructure, Margin outlook and sustainability of current demand AI demand signals, especially from data centers and cloud infrastructure.

Who follows ETFMandate Market Insights knows that I remain rather cautious on the AI sector. Valuations have reached stretched levels, and I see characteristics of a potential bubble. While Nvidia might still deliver strong numbers, the expectations are extremely high. Any hint of slowing demand, weaker margins, or reduced investment appetite could trigger a sharp reaction – not only in Nvidia, but across the entire AI universe.

The outcome may very well shape the tone of the stock market into the end of August.

President Trump has fired Fed Governor Lisa Cook. In a letter posted on Truth Social, he stated that he had found “sufficient cause” to terminate her “immediately.” Cook, however, responded that Trump “has no authority to do so” since “no cause exists under the law.” The move adds another chapter to the growing tensions between the White House and the Federal Reserve.

Markets: immediately cheered the news

• 10-year US Treasury yield returned to the 4.30% level

• US dollar weakened

• Gold price is climbing

My View: The question is how long the Fed can maintain its independence. Trump has been trying for months to exert influence, pressing for lower interest rates to offset the economic drag from tariffs and to reduce debt-servicing costs.
Higher rates mean higher mortgage payments, leaving consumers with less disposable income. Consumption accounts for roughly two-thirds of US GDP. The ongoing political pressure on the Fed therefore not only threatens institutional independence, but also highlights the delicate balance between monetary policy, politics, and economic growth.

A risk that shouldn’t be ignored: major foreign Treasury holders may lose confidence in Fed independence. If countries like China or Japan were to reduce their holdings, US yields could spike abruptly. We briefly saw such dynamics play out during one night in April this year. A repeat of that scenario could put both markets and the US administration under severe pressure.