by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Note: Due to the holiday, there will be no Comment on Monday, January 19.

Our Comment begins by examining the resurgence of enthusiasm around artificial intelligence. We then analyze key domestic and international developments, including new signals from Federal Reserve officials on potential interest rate cuts, efforts by Canada and the European Union to diversify trade partnerships, and a proposal to advance Ukraine’s EU membership. We also explore a potential tax policy change that could affect sovereign wealth funds. The report concludes with a roundup of essential economic data from the US and abroad.

Chip Demand: AI stocks found fresh momentum following a stellar performance from TSMC. As the world’s leading foundry, TSMC’s ability to “drastically beat” expectations serves as a validation of the ongoing AI buildout. The company’s upgraded 2026 revenue outlook of 30% and its massive $52–$56 billion capital expenditure budget suggest that the hardware cycle is far from over. This guidance has bolstered confidence in the sector, proving that demand remains robust despite broader macroeconomic uncertainty.

• The robust results have helped soothe investor concerns regarding AI fatigue, which had begun to weigh on the market after two years of exponential growth. The company’s increased spending guidance serves as a powerful vote of confidence, suggesting that the infrastructure cycle is still in its expansionary phase rather than nearing a peak.
• Additionally, the capital expenditure from TSMC and other technology heavyweights is expected to provide a significant tailwind for the broader economy. As noted in our latest Asset Allocation Bi-Weekly Report, economic growth has become increasingly reliant on AI investment, which served as a crucial stabilizer during the uncertainties of 2025. This sustained spending provides strong evidence that the current expansion could accelerate throughout the year.
• Nevertheless, significant headwinds remain that could dampen this momentum, particularly as AI infrastructure becomes an increasingly sensitive political issue. Developers are struggling with data center buildouts due to acute shortages of power and critical components. Simultaneously, firms are facing growing a political push to pay a premium for energy usage, as regulators seek to mitigate the upward pressure that industrial demand is placing on household utility costs.
• The AI-driven bull market still shows strength, yet the need for portfolio balance is increasing. We have noted a recent shift toward broader market participation, which helps alleviate concerns regarding extreme sector concentration. This rotation is uncovering opportunities in quality companies that were previously overshadowed by AI. As such, we suggest investors look toward these “undervalued” segments to build a more resilient, diversified portfolio.

Fed Talk: Despite positive economic signals, key Fed officials are tempering expectations for near-term rate cuts. On Thursday, Atlanta’s Raphael Bostic and Kansas City’s Jeffrey Schmid stressed the need for ongoing restrictive policy amid lingering inflation. Conversely, Chicago’s Austan Goolsbee reiterated the 2% inflation goal but indicated potential future easing if the cooling trends continue. The comments precede a standard pre-meeting media blackout before the FOMC convenes on January 26.

• The latest data suggests a shift in the Federal Reserve’s priorities. With inflation showing signs of stabilizing, the focus is turning toward the maximum employment side of their mandate. Recent reports underscore this resilience: Initial jobless claims fell to a low of 199,000 last week, while the Chicago and Philadelphia Fed surveys both pointed to accelerating economic activity. These figures suggest the economy may be heating up again, complicating the need for future rate cuts
• At the same time, concerns are mounting over the reliability of the latest inflation figures. Although the CPI has shown improvement, critics argue the data may be skewed. Because of the government shutdown, some categories, such as shelter costs, were simply carried over from the prior month rather than updated with new data. This “downward bias” suggests that inflation might actually be higher than the current reports indicate.
• Market focus has shifted squarely onto the Fed as fears mount over AI-related spending and political overreach. Any suggestion that the White House is successfully pressuring the Fed to prioritize lower rates over price stability has provided a floor for benchmark yields. This market-led pushback has forced the administration to reaffirm Chair Powell’s position, yet the broader question of the Fed’s long-term independence continues to drive volatility.
• Due to an improving economic outlook and persistent uncertainty regarding inflation, Fed officials are likely to remain hesitant to lower the federal funds target at their next meeting. While we anticipate multiple rate cuts this year, we expect the timing to shift toward the second half of 2026, potentially following the appointment of a new Fed chair. However, this outlook remains contingent on the labor market as any significant signs of deterioration could accelerate the timeline for easing.

Canada Pivots to China: Canadian Prime Minister Mark Carney met with President Xi Jinping in Beijing this week, signaling a strategic effort to reduce Canada’s economic dependence on the United States. During the visit, the two leaders pledged to establish a high-level dialogue encompassing trade in oil and gas, as well as investments in nuclear and clean technology. Carney’s decision to pivot toward China underscores a growing trend of middle powers seeking greater autonomy by balancing their relationships between Washington and Beijing.

EU-Lite: The EU is drafting a proposal to streamline Ukraine’s accession process by bypassing certain stringent criteria. This framework, dubbed “enlargement lite,” would establish a two-tier system allowing smaller or conflict-affected nations to join the bloc with modified requirements. While designed to facilitate a peace settlement by satisfying President Zelenskyy’s domestic mandate, the move has rattled markets. Investors are concerned that a multi-speed Europe could dilute the bloc’s institutional integrity and complicate future fiscal integration.

Mercosur Outrage: The US has criticized a pending trade agreement between the European Union and South American nations as unfair. The deal is expected to be signed this weekend and would reduce tariffs while significantly boosting trade, particularly in meats and cheese. US officials argue that the agreement would grant the EU a monopoly over certain products, harming American farmers. This development is likely to heighten transatlantic tensions, especially at a time when the US has been seeking to strengthen its own influence in South America.

Foreign Taxes: The United States is considering changes to its tax code that would increase the tax liability of the US investments in sovereign wealth funds and certain public pension funds. This measure represents a further effort by the administration to deter countries from devaluing their currencies by limiting their ability to recycle dollar surpluses back into the United States as investments. Such a policy could place downward pressure on the dollar’s value and potentially reduce overall foreign holdings of US assets.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment begins with an analysis of the White House’s discussions on Greenland and their implications for NATO’s future. We then transition to other developments, including a breakdown of the latest Fed Beige Book and the de-escalation of tensions between the US and Iran. Additionally, we provide a brief overview of the recent decline in silver prices. The report also includes a roundup of essential domestic and international data.

Greenland Talks: Tensions between the United States and its NATO allies have escalated as the White House continues to pursue the acquisition of Greenland. On Thursday, foreign ministers from Denmark and Greenland met with US officials to discuss Arctic security concerns. While the meeting established a formal dialogue, significant disagreements remain. In a sign of sharply deteriorating relations following the visit, NATO deployed its navy to the waters surrounding Greenland.

• The primary disagreement centers on the US rationale for the takeover. The White House claims the move would enhance security for all NATO allies; however, the logic is questionable. While ownership might slightly improve the US’s ability to counter Russian and Chinese threats, the 1951 defense treaty already provides the US with the necessary access to defend the region.
• A more plausible explanation for the US action is a deep-seated distrust of multilateral organizations, particularly NATO. The White House has long criticized the alliance over chronic underinvestment in defense by member states and clear deficits in military readiness for a major conflict. Consequently, US leadership doubts that these allies would fulfill their treaty obligations to defend the United States in the event of an attack.
• Under this view, the US may perceive Greenland as a de facto protectorate, despite it being under Danish sovereignty and the NATO security umbrella. This perception has likely fostered a sense of entitlement toward the territory and its strategic assets, particularly its vast reserves of rare earth elements.
• In short, the US push to acquire Greenland may signal a broader departure from the traditional framework of alliance building toward a foreign policy defined by territorial and resource accumulation. Consequently, this move represents a more assertive — and perhaps unilateral — America than the world has encountered in recent decades.
• The fracturing of relationships with European allies represents a pivotal shift in foreign policy, perhaps signaling a transition from a benevolent to a malevolent hegemon, which we’ve written on in the past. This adjustment suggests a future where the US prioritizes resource security over diplomatic alliances, a move likely to drive a surge in the demand for industrial commodities over the coming years.

Beige Book: The Federal Reserve’s latest summary of regional economic conditions shows a slight rebound in sentiment following a period of pessimism from respondents. According to the Beige Book, a majority of districts reported that growth has accelerated from “slight” to “moderate,” while the remaining regions saw no change and one noted a marginal decline. This upswing in sentiment, emerging in the wake of the government shutdown, may signal a shift in momentum after a year characterized by persistent uncertainty.

• The improvement in economic activity appears to be driven by increased consumer spending. Much of this surge followed the end of the government shutdown, with the holiday season providing additional momentum. However, the rise in purchases appears largely concentrated among high-income households, while low-income households continue to show signs of growing price sensitivity.
• Improved sentiment has also translated into a more stable employment outlook. Most districts reported that employment levels remained unchanged from the previous period, an improvement over November’s survey, which had indicated that employment was in decline. Contributing factors include firms’ strategic shifts from aggressively limiting headcount to now prioritizing the use of temporary workers and AI implementation.
• Despite an overall positive report, price pressures remain a focal point of concern. A majority of districts reported moderate cost increases, largely attributed to ongoing tariff anxieties. As pre-tariff inventories are exhausted, an increasing number of firms have expressed a willingness to pass these costs through to the consumer. Conversely, sectors such as retail remain hesitant, fearing a pullback from price-sensitive customers.
• The rise in optimism appears to be part of a broader trend, as firms begin to look beyond immediate tariff concerns to focus on future growth. Provided there are no material changes to regulation or fiscal policy, this change should bolster the prospects for a stronger economy. While it is too soon to recommend an increase in risk tolerance, these conditions could significantly enhance the investment climate, provided this sentiment persists.

Iran Strike Avoided: Tensions between Iran and the US have slightly eased following pledges from Tehran to halt protester executions. On Wednesday, the White House signaled it would withhold planned military strikes in response to these assurances, a move that coincided with the reopening of Iranian airspace. This cautious de-escalation comes as the Iranian regime continues its crackdown on domestic protests now entering their third week. While this easement has calmed global markets and lowered commodity prices, the risk of renewed conflict remains significant.

Data Center Consumption: PJM Interconnection, the largest US grid operator, has lowered its 2027 peak power demand forecast from 164 to 160 gigawatts. This revision serves as a reality check for the “AI boom,” as PJM cited a lack of firm construction commitments or electrical service agreements for many projected data centers. The new outlook is likely to pressure energy companies whose valuations have rallied on near-term AI energy demand.

Silver Prices Decline: The White House has deferred the imposition of new tariffs on silver, a move expected to alleviate immediate price pressures on the metal. This decision follows a November directive to study silver’s national security implications under Section 232. While the president has not ruled out future duties, he has signaled a shift toward protecting domestic producers through price floors rather than broad-based tariffs. This pivot has already begun to cool “bubble” concerns that had previously sent silver prices to record highs.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with an analysis of the president’s pressure campaign on Iran, highlighting its significance for US foreign policy. We then examine key domestic initiatives, including the White House’s push to cap credit card interest rates and improve home affordability, as well as the notable geopolitical effort to acquire Greenland. We also address the global implications of China’s record trade surplus. Lastly, the report includes a roundup of essential domestic and international data.

Trouble for Iran? As protests in Iran continue, the United States appears to be positioning itself as a potential enforcer should the government’s crackdown become extreme. On Tuesday, the White House encouraged protesters to maintain pressure on the current regime and to occupy key institutions. Additionally, it offered assurances of US backing, suggesting possible intervention if Ayatollah Khamenei does not curb the violence. These comments signal another step in the president’s pivot toward a more assertive foreign policy.

• By challenging the internal stability of Tehran, President Trump is accelerating the erosion of China and Russia’s strategic reach. The recent capture of Nicolás Maduro served as the catalyst, throwing the stability of anti-US regimes into doubt. As Iran struggles to contain a brutal wave of domestic protests, Cuba stands as the next likely domino to fall, leaving the Sino-Russian alliance with fewer reliable footholds in the Western Hemisphere and the Middle East.
• Washington’s effort to flip key regional allies of China and Russia is gaining momentum. Following the ouster of Maduro, the president is balancing relations with the interim Venezuelan leadership and the Machado-led opposition to ensure a pro-US transition. These diplomatic inroads are mirrored in the Caucasus, where a new 49-year security corridor has been established, and in the Middle East, where the administration is directly engaging with the exiled former crown prince of Iran amid nationwide unrest.
• While the US has achieved recent strategic successes, these gains are not without risks. Russia, for example, has intensified its campaign in Ukraine in response to these advances and may feel emboldened to challenge NATO more directly after the conflict concludes. Meanwhile, China appears to be leveraging its influence by pressuring countries, such as Australia and Brazil, into aligning more closely with its geopolitical orbit.
• Recent US foreign policy moves, including its pointed comments on Iran, highlight a broader strategy of countering Russian and Chinese influence through expanded power projection. In our view, such actions risk provoking retaliatory measures from Moscow and Beijing, both of which are intent on solidifying their international standing. While we do not consider direct war likely, we recognize a clear pathway for miscalculation that could escalate into conflict.

Wall Street Responds: On Tuesday, the White House escalated its pressure on banks, using social media to demand they impose a one-year, 10% cap on credit card interest rates. He warned that institutions failing to comply by January 20 could face punishment, without citing a legal basis for the threat. This aggressive directive represents the latest in a series of populist economic interventions, including recent moves in housing policy, designed to deliver immediate consumer relief and improve the party’s electoral prospects ahead of the 2026 midterms.

• The president’s timing targets major banks just as they prepare to release their earnings reports. Revenue from credit card swipe fees has become a cornerstone of bank profits, driven by the widespread extension of household credit. While these fees have boosted profit margins, they have also fueled rising consumer debt and a surge in delinquencies — a trend that has now sparked calls for government intervention.
• While industry leaders have signaled their intent to contest the cap through aggressive lobbying and judicial challenges, emerging reports suggest the sector is already exploring strategic concessions. Potential compromises include a voluntary expansion of the 36% Military Lending Act (MLA) cap to all consumers and the introduction of a temporary one-year promotional rates to satisfy the White House.

• To further pressure the banks, the president has signaled his support for the Credit Card Competition Act. This legislation would require banks, specifically those with assets over $100 billion, to ensure that every credit card offers a payment network option beyond just Visa and Mastercard. This would grant merchants a choice of competing networks for processing transactions.
• Though the president’s formal power to act against financial institutions is limited, his public intimidation campaign is effectively testing the limits of unilateral executive action. If successful, it would likely embolden the White House to issue further directives, fueling an interventionist populist agenda that bypasses institutional norms and permanently expands the scope of presidential authority.
• The White House’s growing assertiveness is creating significant uncertainty for firms. This environment may compel companies to reconsider future plans as they work to ensure compliance and avoid regulatory entanglements. Consequently, equity market risks are becoming more elevated, underscoring the value of maintaining a well-diversified portfolio with exposure to both value and quality factors.

Homebuilders Under Fire: The White House has publicly criticized homebuilders for failing to sufficiently lower housing costs. The Federal Housing Finance Agency has specifically accused these companies of intentionally keeping prices elevated at the expense of potential buyers, citing their use of stock buybacks as evidence of their capacity to reduce home prices. This coordinated criticism signals to the industry that they are expected to prioritize affordability over excessive profits.

Greenland Talks: The United States continues to advocate within NATO for its ambition to annex Greenland. While the territory is already part of the alliance through Denmark, the White House has suggested that control by the US would enhance its strategic protection. These comments follow statements from Greenland’s leaders reaffirming their preference to remain under Danish sovereignty and are likely to raise questions about Washington’s commitment to NATO’s foundational principles.

China Surplus Rises: China’s trade surplus shattered records in 2025, punching through the $1 trillion ceiling for the first time to reach $1.19 trillion. This milestone confirms that manufacturers have successfully bypassed the 20% slump in US trade by pivoting toward the EU and ASEAN regions. While this shift highlights China’s increasing independence from US consumer demand, the massive global imbalance is fueling international concerns over industrial overcapacity, likely leading to a new wave of reciprocal tariffs from non-US nations in 2026.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today first discusses one way to understand the US’s new foreign policy now that we’ve had a year to observe it in practice, taking into account the administration’s new national security strategy and analysis of peak events such as the seizure of Venezuelan President Maduro. We next review several other international and US developments that could affect the financial markets today, including rising pushback to the Justice Department’s probe of Federal Reserve Chair Powell and a presidential social media post that may signal new federal regulation of electricity prices.

US Foreign Policy: More than a week has passed since the US seizure of Venezuelan President Maduro, and it may be useful to say some words about the US’s evolving new foreign policy. Coupled with the administration’s national security strategy and its other initiatives over the last year, the action in Venezuela suggests to us that the “spheres of influence” goal so many analysts are discussing may not be the most accurate. Rather, we wonder if “neo-colonialism” may be a better way of thinking about President Trump’s foreign policy and where it’s heading.

• First, it’s helpful to understand the terminology. We see colonialism as an economic and political relationship in which the mother country has some degree of control over foreign lands to use them as guaranteed markets and/or sources of raw materials and industrial inputs. People typically see spheres of influence as more tenuous control over a particular geographical area. Finally, imperialism is an even broader, stronger control over foreign countries through military, diplomatic, and economic power.
• Many observers, especially in weaker countries or former colonies, use “colonialism” as a pejorative term, but we don’t. We use the term only descriptively — to better understand the evolving system’s political, economic, and investment implications. Indeed, one could argue that foreign policy should be judged by whether it advances the interests of the country’s people, including its working class. Past colonial systems, such as that of the British, may well have been quite positive for their own people and working classes.
• Given the administration’s focus on economic and commercial interests, it’s possible to argue that it is seeking to build a new, US-centered, neo-colonial system established and maintained by hard power. In this system, more industrial production would happen within the US, but Washington would have some degree of explicit or implicit control over other countries to ensure they serve as valuable markets or as sources of raw materials or industrial and technological components.
• If this is true, administration officials seem to want the new US neo-colonial system to be centered on the Western Hemisphere, mostly because they prefer short, easily defensible supply lines. The problem is that there are many key minerals and industrial or technological inputs outside the Western Hemisphere. For example, many critical minerals are most available in Africa or the Asia-Pacific region. The most advanced computer chips are currently produced almost exclusively in Taiwan.
• The administration may hope to eventually source all key minerals and industrial inputs from the Americas, but for the time being, any evolving US neo-colonial system would have to be broader than that, extending out in the Pacific Ocean to places like Japan, South Korea, Taiwan, and the Philippines, and across the Atlantic to at least some countries in Europe, the Middle East, and Africa.
• How would this evolving system affect the global “bloc” system that we at Confluence have discussed so much in recent years? At first, the new US system may largely overlap the current US-led geopolitical and economic bloc. However, while the bloc system implies a certain static, stable grouping of countries, the evolving neo-colonial system could be more fluid. In fact, a new tension-filled “Great Game” may emerge, where China and other countries tussle with the US to bring key countries into their system.
• As the US works to draw these countries close as a source of demand and supply, Washington will likely push to ensure that their economic policies are aligned with those of the US. If this includes pressure for improved policies such as deregulation and fiscal stability, Washington’s embrace may signal improved growth and better stock market performance.
• Over time, however, the US embrace of countries further afield, with long supply lines to the US, may be abandoned. For instance, while the US currently may want to defend Taiwan to ensure access to its semiconductor supplies, Washington is trying to develop the US’s indigenous capacity for those goods. When and if that eventually happens, the US would have much less interest in supporting Taiwan. Similar logic could apply to countries such as Japan, South Korea, and much of Europe in the long term.
• We would caution that this is still not a definitive analysis. We continue to watch the administration’s approach and try to better understand where it is going. And importantly, we are still wrapping our head around the associated investment implications. Many of our current themes are likely to continue, such as our positive view on European defense stocks and precious metals. All the same, we suspect that our analysis will reveal some additional opportunities and risks going forward.

United States-Taiwan: The Wall Street Journal today reports that Washington and Taipei are nearing a trade deal in which the current 20% import tariff against Taiwan would be cut in return for Taiwan committing to more than $300 billion in investment and other spending in the US. That sum includes and expands on last year’s $165-billion investment commitment from Taiwan Semiconductor Manufacturing Company. Importantly, the expanded investment commitment would have TSMC building as many as a dozen new cutting-edge chip plants in Arizona.

• The new Arizona fabs would produce both logic chips, which are used for artificial intelligence, and packaging chips, which provide supporting functions.
• The deal underscores the US administration’s focus on building up domestic technology manufacturing. Tech now is clearly a favored sector in the US, which will likely support the prospects for tech stocks going forward. However, its favored status could make it more susceptible to government interference over time.
• By increasing and expanding the range of advanced semiconductor manufacturing in the US, the deal also would be consistent with the administration’s goal of shortening and securing key supply chains. Consistent with the discussion above, however, it could eventually reduce the US’s reliance on Taiwanese production and reduce the US’s security interests in Taiwan.

United States-Iran: To pressure Tehran to stop its violent repression against anti-government protestors, President Trump yesterday said he would immediately impose an additional 25% import tariff on any country doing business with Iran. Based on data from the first half of 2025, some 100 countries could be at risk of the added tariffs. However, the most exposed would likely be China, Turkey, Pakistan, and India, all of which could face a new round of trade disruptions and financial market volatility.

 US Monetary Policy: Several top Republicans in Congress have criticized the administration’s criminal investigation of Fed Chair Powell, with at least two Republicans in the Senate signaling that they would hold up the president’s next nominations to the central bank over the probe. The sudden pushback may force the administration to shelve its probe and simply wait until Powell’s term runs out in mid-May. Even then, however, we think the White House would continue to push the Fed to slash interest rates when a new chair is in place.

• JPMorgan Chase CEO Jamie Dimon this morning added his opinion, saying that “anything that chips away” at the central bank’s independence “is not a good idea.”
• Dimon also warned that political interference with the Fed would cause inflation and interest rates to rise, contrary to President Trump’s goal of lowering rates.

 US Critical Minerals Industry: Louisiana-based gallium producer Atlantic Alumina yesterday said the Pentagon has bought $150 million of preferred equity in the firm and will make further investments in the near future. The deal is the latest in a string of US government investments in firms producing minerals that are critical to advanced technology and defense goods. The aim is to break China’s near monopoly on producing many of the minerals — an aim that has boosted investor interest in critical minerals firms and other miners and processors.

US Housing Industry: New York Gov. Kathy Hochul today will reportedly propose exempting most new housing projects from the New York State Environmental Quality Review Act. If the reform is approved by state legislators, it would mark the latest state or local effort to make it faster and cheaper to build new housing supply by cutting regulations. If such state and local efforts hit critical mass, they could be positive for national homebuilders.

US Electricity Market: In a social media post last night, President Trump said he never wants “Americans to pay higher Electricity bills because of Data Centers.” Rather, he insisted that big tech companies building data centers “must ‘pay their own way.’” Given the president’s other proposed market interventions to address “affordability,” the statements may raise concerns that he will intervene in the electricity market to push down consumer bills ahead of the mid-term elections in November — a move that could roil technology and utility stocks.

European Union: New data from European trade body CLEPA shows auto parts manufacturers on the Continent eliminated over 100,000 jobs over 2024 and 2025, twice the total loss during the coronavirus pandemic. According to the organization, the losses reflect weak European auto demand and ultracompetitive pricing by Chinese auto exporters. The figures illustrate the dire straits faced by Europe’s auto sector and point to the possibility of further trade tensions between the EU and China.

United Kingdom: Air Chief Marshal Sir Richard Knighton, chief of the defense staff, told a parliamentary committee yesterday that the British armed forces are underfunded and that “We are not as ready as we need to be for the kind of full-scale conflict that we might face.” The statement shows how European countries probably will not be able to defend themselves against Russian threats in the near term, even if they want to rearm quickly. That suggests European defense firms will continue to see growing revenues, profits, and stock prices for years to come.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with yesterday’s extraordinary news that the Justice Department has launched a criminal investigation against Federal Reserve Chair Powell. We next review several other international and US developments with the potential to affect the financial markets today, including the latest on President Trump’s effort to cajole US energy firms to invest in Venezuela’s oil sector and the president’s desire to temporarily cap credit card interest rates.

US Monetary Policy: Fed Chair Powell last night said he is being investigated by the Justice Department for crimes related to his testimony last summer about the reconstruction of the central bank’s headquarters. Powell insisted the probe is intimidation aimed at forcing him to slash interest rates to serve President Trump’s political purposes. As we noted last summer, our personal observation of the project suggests it is much bigger than the “renovation” most media describe. In a project that big, it should be easy for prosecutors to find some malfeasance.

• The move against Powell comes even though his term ends in May. Unleashing such an attack on him with so little time left in his term underscores how focused the White House has become on the mid-term elections this fall.
• In any case, our quantitative analysis does not suggest that short-term interest rates need to be slashed. We have long predicted that political pressure will force the Fed to cut interest rates more in 2026 than in 2025, but with the cuts coming mostly in the second half. Now, if Powell is forced to resign early, dramatic rate-cutting could come even earlier, despite the risk of boosting consumer price inflation.
• Most observers of the situation have focused on the Fed losing its independence to set interest rates, but the White House may also be hoping to influence the Fed’s purchase of assets. For example, administration officials would probably like to be able to direct the Fed to buy particular assets for their own political purposes.
• The potential change in the Fed chair has rekindled concerns about excessively low interest rates and currency debasement, prompting new weakness in the dollar and a jump in gold So far this morning, the greenback has depreciated about 0.4%. Gold prices have jumped 2.8% to a new record high of about $4,628 per ounce.

US Bond Market: In 55 investment grade deals, US corporations issued $95 billion of bonds last week, marking the highest weekly volume since May 2020 and the busiest start to a year on record. The surge reportedly reflects firms trying to lock in rates before a mountain of issuance related to artificial intelligence in 2026. With the new threats to Fed independence, even more firms may be tempted to issue bonds and lock in rates in the coming weeks.

United States-Venezuela: At a meeting on Friday afternoon, President Trump urged the executives of top US oil companies to invest $100 billion into rebuilding Venezuela’s oil industry. However, the officials generally pushed back, largely on grounds that there is still too much risk of their assets being seized. Of course, today’s relatively low oil prices are probably also a concern.

• Meanwhile, Treasury Secretary Bessent said the administration could ease some sanctions on the Venezuelan oil industry as soon as this week.
• Bessent also said the US would press the International Monetary Fund, the World Bank, and other international institutions to ease their measures against Venezuela to get the country’s oil flowing faster.
• All the same, as we have noted before, even if the US seizure of President Maduro and reduced sanctions lead to revived Venezuelan oil output, significant amounts of new supply may not become available for years.

United States-Greenland-Denmark: The Financial Times yesterday quoted several Nordic diplomats and officials as saying the North Atlantic Treaty Organization has no intelligence that Greenland is often surrounded by Chinese and Russian warships. The statements contradict recent assertions by President Trump. Nevertheless, separate press reports today say Trump has ordered the US special forces to develop plans for a military seizure of the island from Denmark.

• Some US officials have recently insisted that the president’s threats of military action to seize Greenland merely constitute pressure tactics to convince Denmark to sell the territory at a low price.
• Nevertheless, actions such as the seizure of Venezuelan President Maduro and the formal investigation into Fed Chair Powell suggest a similarly aggressive move to take Greenland cannot be ruled out. In such an event, the security situation between the US and Europe would change immediately, likely sparking significant market volatility.

United States-China: With little notice, the US late last week dropped its proposed ban on Chinese and some other foreign-made drones. The U-turn may reflect domestic resistance to crimping the supply of the products, but press reports suggest the key reason was to avoid antagonizing Beijing ahead of President Trump’s summit with General Secretary Xi this spring. If so, the development helps confirm our view that the administration’s evolving foreign policy will include lowering tensions with China, which is likely bullish for US and Chinese stocks.

United States-Iran: Anti-government protests continued throughout Iran over the weekend, with the death toll rising to at least 500. Meanwhile, press reports say the White House is mulling multiple strategies, including military strikes, if Tehran kills more of the protestors. The sources say most of the strategies being considered are non-kinetic, but given the president’s willingness to use force in places like Venezuela, investors probably should consider the risk of a US strike against Iran, a potential Iranian retaliation, and the market volatility that would likely follow.

Japan: Prime Minister Takaichi is reportedly mulling dissolving the lower house of parliament for a snap election early next month. Takaichi’s goal would be to capitalize on her 70% approval rating and boost the narrow majority now held by her Liberal Democratic Party and its coalition partner, the Japan Innovation Party. The risk is that Takaichi’s coattails may not be as strong as she thinks, and the LDP and JIP could lose seats. Nevertheless, the prospect of a more stable majority for the pro-business Takaichi may be a positive for Japanese stocks.

US Regulatory Policy: President Trump, in a social media post on Friday, called for capping credit card interest rates at 10% for one year, reviving a promise he made during his reelection campaign in late 2024. It isn’t yet clear how far the president would go to implement the cap, but it would be consistent with the administration’s willingness to intervene in the markets and the president’s new focus on affordability. Any such cap could be negative for financial assets.

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