From Graham Stephan.
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TRUMP VS THE FED: THE FIGHT OVER INTEREST RATES
Trump has aggressively pushed for lower interest rates since taking office, clashing with Federal Reserve Chair Jerome Powell. While Powell does not set rates alone, he oversees the committee that does, making him the main obstacle to Trump’s goal of dramatically cheaper borrowing. Trump has publicly floated rates as low as 1 percent and even suggested removing Powell. Although the Supreme Court has signaled Powell is legally protected from removal, tensions escalated further with DOJ subpoenas tied to a Fed building renovation, which Powell argues are politically motivated. Markets care because this conflict threatens the Fed’s independence, risks global confidence in the U.S. dollar, and sets the stage for major change once Powell’s term ends in May 2026.
MARKETS AT A CROSSROADS IN 2026
Despite strong performance over the last five years, analysts are increasingly split on what comes next. Some banks predict modest gains, others double digit upside, but notably no major analyst expects a negative year. Historically, similar optimism has preceded major downturns. The bull case rests on AI driven growth, expectations of lower rates under a future Fed chair, and heavy spending by wealthy consumers. The bear case highlights geopolitical risk, a fragile consumer base outside the wealthy, a weakening dollar from heavy money printing, and the risk of instant repricing in a future 24 hour market.
WHY HOUSING IS STUCK
Pending home sales recently fell sharply across all regions, hitting levels not seen since 2020. Realtors point to low inventory, but the reality appears to be a stalemate. Most eager buyers already bought, while remaining buyers are waiting for rates to fall and sellers refuse to cut prices. Trump’s proposal to inject 200 billion dollars into the mortgage market briefly pushed rates lower, but the mortgage market’s massive size means the impact is likely temporary unless repeated. Any affordability boost also risks being offset by higher home prices.
CAN POLICY PREVENT A HOUSING RESET?
Long term, attempts to support housing such as blocking Wall Street from buying single family homes or subsidizing mortgages are unlikely to materially change affordability. Institutional ownership is small, and the Fed still holds trillions in mortgage assets. Without extreme measures like a full housing bailout or major tax changes, most housing metrics suggest 2026 will look similar to today, with slow sales, stubborn prices, and buyers waiting on rates.
WHAT THE FED JUST SAID AND WHY MAY MATTERS
The Federal Reserve recently signaled no near term rate cuts and reaffirmed a data dependent approach, even as job growth begins to soften. Powell also addressed the DOJ investigation, calling it political pressure. For now, policy is unlikely to change much, but Powell’s exit in May 2026 could flip the script entirely. Trump has expressed admiration for the Greenspan era, when rates stayed low despite warnings of excess, fueling a massive late stage market surge before an eventual collapse.
WHAT THIS MEANS FOR INVESTORS
There is a clear flight to safety into gold and other hard assets, even as stocks sit at historic valuations. History shows markets do not crash simply because they are expensive. They crash when something breaks. That means prices could keep rising longer than expected before reversing violently. The practical takeaway is simple but effective. Diversify, keep cash available, avoid high interest debt, and make sure you are never forced to sell at the worst time. The goal is not to time the top. It is to survive the drop and stay positioned to benefit from whatever comes next.
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