by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment begins with an analysis of the growing political backlash Russian President Vladimir Putin faces over the war in Ukraine. We then examine recent Supreme Court rulings and their implications for executive authority. Next, we briefly cover a proposal to regulate AI agents, the continued weakening of the Japanese yen against the dollar, and a Swiss vote to ease restrictions on weapons exports. As always, we include a review of recent domestic and international economic data.

Putin in Trouble: President Vladimir Putin is facing his most significant political test in nearly two decades as the war in Ukraine drags on. On Monday, Putin was forced to acknowledge the impact of Ukrainian drone strikes on Russia’s energy infrastructure, a rare public admission of vulnerability. The acknowledgment comes amid growing domestic pressure on the ruling United Russia party as the economic and fiscal costs of the war continue to mount with no clear end in sight.

• The Kremlin has increasingly sought to bind Putin’s political fortunes to those of the ruling United Russia party in an effort to sustain his appeal with the public. According to a government-aligned poll, his popularity has fallen to 69%, its lowest level since the war began in 2022. The survey was conducted shortly after Ukraine’s drone attacks on Moscow and St. Petersburg, which forced Russian citizens to confront the war more directly and underscored growing public unease about the protracted conflict.
• Putin’s rare admission comes at a time when the country is forced to deal with rationing and intermittent internet blackouts. Ukrainian drone attacks have impacted Russia’s ability to produce oil, leading to domestic price spikes. To ease the supply burden, Russia has loosened its fuel quality regulations and permitted fuel import, a practice that was virtually non-existent prior to the conflict, given the country’s history as a major energy exporter.
• The growing domestic pushback Putin faces regarding the conflict will likely make it harder for him to ignore increasing calls for a ceasefire. Historically, Putin has been reluctant to accept any deal that falls short of an outright victory, fearing that compromise could undermine his political legitimacy. Consequently, a resolution to the conflict may ultimately require a change in Russian leadership.
• While Ukraine’s leverage has grown in recent weeks due to its successful drone strikes, it is worth remembering that Russia has not yet deployed its full military capabilities. If Putin feels threatened by a potential coup, similar to the mutiny he faced earlier in the conflict, he could begin taking much greater risks. Consequently, while a ceasefire remains the most rational outcome on the table, the risk of further escalation cannot be ruled out.

Supreme Court Rules: Recent Supreme Court decisions have significantly reshaped presidential control over executive branch agencies. Most notably, the Court overturned a 90-year precedent that had restricted presidents from firing certain independent agency officials at will. Ultimately, these rulings underscore the Supreme Court’s expanding influence over executive authority.

• These rulings represent a major victory for the White House, which has consistently championed the unitary executive theory, the principle that the president should exert complete control over all agencies within the executive branch. Ultimately, the decisions are poised to significantly streamline the administration’s ability to direct federal regulators, paving the way for a more rapid rollback of key environmental, anti-trust, and financial regulations.
• While the Supreme Court backed the White House’s push for greater executive oversight elsewhere, it shielded the Federal Reserve’s traditional independence. In a 5-4 vote, the Court allowed Fed Governor Lisa Cook to retain her seat while her lawsuit over mortgage fraud allegations plays out. This critical exception honors the historical precedent of insulating the central bank’s monetary policymaking from direct presidential control.
• That said, the Supreme Court’s decision to grant a stay, thereby returning the case to the lower court, still leaves the question of the White House’s authority to remove Federal Reserve officials unanswered. The president has maintained that he still believes he has the power to reshape the Federal Reserve, suggesting that he may look to challenge the ruling further.
• The recent Supreme Court rulings will likely empower the Federal Reserve to carry out its policy agenda in the near term. However, the potential for shifts in leadership across future administrations could amplify the broader impact of these decisions. As a result, markets may face increased volatility going forward. In addition, the president’s continued push to reshape the Fed is likely to weigh on the dollar.

Growing AI Resistance: In a sign of growing momentum to regulate AI, Senator Mark Warner (D‑VA) has introduced legislation targeting AI agents. The proposal would establish new privacy safeguards and give users greater control over how their data is used and shared across platforms. Although the bill is unlikely to advance in Congress with midterms approaching, it underscores how AI governance is becoming an increasingly salient political issue that could shape the debate heading into the 2028 presidential election.

Yen Troubles: The Japanese currency has fallen to its weakest level against the dollar in nearly four decades, reflecting persistent pressure on the yen. The sharp depreciation is being driven in part by concerns over the economic fallout from the war involving Iran and Japan’s ongoing struggle to contain elevated inflation. The renewed weakness is likely to fuel speculation that the Bank of Japan could step in again to support the currency through market intervention.

European Defense: Switzerland has scheduled a vote on easing its neutrality rules to permit arms exports to select Western countries. The move underscores a broader shift across Europe toward strengthening domestic defense capabilities amid heightened security concerns tied to Russia and increasing strategic friction with the United States. If approved, the policy change would reinforce structural demand for European defense manufacturers.

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