by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment begins with a look at the White House’s intensifying efforts to reshape the Federal Reserve. We also analyze why the de-escalation over Greenland has not improved US-EU relations. Further analysis explores why investors are discounting corporate earnings beats, the IRGC’s consolidation of power amid Iran’s internal unrest, and the growing trade friction between the US and South Korea. As always, we conclude with a comprehensive roundup of essential economic data from the US and global markets.

The Fed’s Future: The future of the Federal Reserve took center stage on Wednesday as the administration moved to reshape the FOMC. The Supreme Court began hearing arguments on whether the president holds the authority to dismiss Fed Governor Lisa Cook following allegations of mortgage fraud. Simultaneously, the president reaffirmed his search for a successor to current Chair Jerome Powell. These developments are critical, as both outcomes will likely redefine the executive branch’s influence over independent monetary policy.

• The Supreme Court appeared skeptical of the White House’s claim that it has the authority to fire Governor Cook. Several conservative justices questioned whether such a dismissal could occur without providing Cook proper due process. The most prominent critic was Justice Kavanaugh, who suggested that the government’s argument would essentially allow a president to “dig up” accusations of wrongdoing as a pretext for removing any Federal Reserve official.
• Although the president’s power to remove members of the Federal Reserve Board remains a subject of debate, his search for a new Fed chair continues. Earlier this month, the president indicated that he is leaning against nominating Kevin Hassett. Now, it appears former Fed Governor Kevin Warsh may also be losing favor. Warsh’s advocacy for the Fed to maintain a small balance sheet places him in direct opposition to the president, who is seeking ways for the Fed to implement more accommodative monetary policy.
• The appointment of a new Fed chair won’t necessarily end Jerome Powell’s influence, as his separate term as a governor continues through 2028. While the president is expected to push for a full resignation, Powell has remained non-committal. Tensions reached a boiling point this week when Powell accused the administration of weaponizing a DOJ probe into Fed renovations as a legal pretext to force him out of the central bank.
• Despite the administration’s aggressive attempt to remake the Board of Governors, judicial skepticism suggests that the president’s influence will remain bounded by law. This check on executive power is critical for restoring trust in the Fed’s mandate. Provided that the central bank preserves its decision-making independence, the resulting policy certainty should support the greenback and temper recent spikes in market volatility.

Greenland Tensions Ease: President Trump has rescinded his threat to impose sweeping tariffs on European goods, effectively de-escalating a tense transatlantic standoff. The announcement followed a high-stakes meeting with NATO Secretary General Mark Rutte, during which the two established a strategic “framework” for bolstered US influence in Greenland and the Arctic in which the US would gain mining rights and station missiles in the region. While this agreement suggests that the immediate crisis has peaked, the underlying diplomatic friction remains.

• Following his meeting with President Trump, Secretary General Rutte clarified that the new framework focuses on regional security rather than Greenland’s sovereignty. He noted that the arrangement largely mirrors the terms established with White House officials prior to the president’s arrival. Rutte further elaborated that the agreement grants the US greater latitude to defend the semi-autonomous territory than was originally provided for under the 1951 Defense of Greenland treaty.
• While the agreement has assuaged fears of a US attempt to acquire territory from a NATO ally, it has simultaneously raised concerns about the international order breaking down. On Thursday, German Chancellor Friedrich Merz warned that Europe must prepare to become more independent and competitive as it positions itself to compete with the US. He emphasized the removal of bureaucratic hurdles to help companies operate and the establishment of a Capital Markets Union to draw more foreign investment.
• Modernizing EU operations is essential for competitiveness but faces a notoriously slow timeline. The bloc’s tendency to stall on trade deals was highlighted this week when the European Parliament referred the hard-won Mercosur agreement with South American nations to the ECJ. By seeking a judicial opinion before ratification, the EU risks a multi-year delay, underscoring how domestic pressures and legal cautiousness continue to hamper its ability to act quickly to address threats.
• The removal of the “Greenland risk” is a clear win for European stocks in the near term. However, the path toward true European independence from the US is fraught with structural challenges. We continue to see value in the region, especially if leaders move forward with a Capital Markets Union to unlock domestic investment. Although the implementation of such reforms will likely take longer than anticipated, the risk-adjusted returns for long-term holders appear favorable.

High Investor Expectations: Geopolitical uncertainty is overshadowing corporate fundamentals, leading to the worst stock reactions to earnings beats in nearly a decade. Bloomberg reports that the relative performance of firms surpassing expectations is at a low not seen since 2017. Investors are clearly looking past current profits to focus on forward-looking risks, suggesting that the momentum for traditional market leaders is fading. In this environment, we recommend increasing exposure to more value stocks.

Iranians Military Rise: The Islamic Revolutionary Guard Corps (IRGC) appears to be consolidating its power within the country. Its rising influence coincides with a surge of political unrest during which military forces have killed protesters. This consolidation has raised concerns that the IRGC’s leadership could effectively take control of the government, potentially heralding a new regime. So far, it is unclear how the US will react, but it has shown a willingness to confront any regime that might restart the country’s controversial nuclear program.

Silicon Valley Takes on Seoul: Silicon Valley investment firms are reportedly calling for diplomatic intervention to protect Coupang from an escalating regulatory crackdown in South Korea. Although headquartered in Seattle, the e-commerce giant faces intense scrutiny from Korean authorities following a massive data breach disclosed in November, which compromised the personal information of 33 million customers. Investors are concerned that the investigation is due to the government’s outsized response and is rooted in protectionism.

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