To The Moon

$S&P 500(.SPX)$

The U.S. stock market is soaring, investor sentiment is buoyant, and risk appetite is alive and well. But beneath the surface of this rally lies a very different story than what most headlines suggest. This isn't a celebration of economic strength, record earnings, or a productivity renaissance—this is about one thing: the expectation that easy money is coming back.

Markets have now firmly priced in an upcoming wave of interest rate cuts from the Federal Reserve. And with Donald Trump likely to intensify pressure on monetary policy should he win re-election—possibly replacing Fed Chair Jerome Powell with someone more aligned to his views—the bulls have found another reason to bid up stocks.

In short, Wall Street sees the potential return of zero-bound-style policy in the not-so-distant future. The only thing standing in the way? A Fed that's walking a tightrope between inflation vigilance and recession avoidance.

Let’s explore the full picture of what’s happening—and what may come next.

🏛️ The Fed Hits Pause—for Now

At its June 18th policy meeting, the Federal Reserve did what most expected: it held interest rates steady. Despite calls for easing from investors, homebuilders, small businesses, and even some global policymakers, the Fed made no move—opting for patience amid lingering inflation risks.

But the forward guidance painted a more nuanced picture. The Fed continues to project two rate cuts in 2025, and its tone subtly shifted toward flexibility.

The Fed’s next policy meeting is scheduled for July 30th, and the market is already weighing the odds. According to the CME FedWatch Tool:

• There’s currently a 77.3% probability that the Fed will hold rates steady in July.

• Conversely, only a 22.7% chance is assigned to a cut next month.

The real inflection point, however, is the September 17th FOMC meeting. That’s when the dam is expected to break:

• 92.1% probability of a rate cut is priced in for that meeting.

• That meeting could mark the beginning of a broader easing cycle, with the second cut likely to follow by Q4.

🧠 Why Isn’t the Fed Cutting Yet?

If inflation has cooled, unemployment remains low, and global peers are easing—why is the Federal Reserve standing still?

The answer lies in forward-looking inflation expectations. Fed Chair Jerome Powell made this clear in his recent testimony to Congress:

“You can make a strong case for rate cuts by looking in the rearview mirror. But our forecast—and that of nearly every outside economist we consult—calls for inflation to rise in the second half of 2025.”

The culprit? Tariff uncertainty and political risks.

With U.S.-China tensions rising, tariff policies being revisited, and a looming election season, the Fed is concerned about price shocks caused by higher import costs. Powell emphasized that this “potential but highly uncertain” source of inflation justifies a cautious stance.

This "wait and see" approach is a hedge against the kind of policy mistake the Fed made in the early 2020s—when it waited too long to hike, only to chase inflation with aggressive tightening later.

🌍 A Global Comparison: The U.S. Is the Hawk in a World of Doves

Powell's caution stands in stark contrast to what we’re seeing from other global central banks.

Here are some global policy rates for comparison:

Many of these central banks have already begun easing. The European Central Bank (ECB) and the Bank of Canada have both executed rate cuts in recent weeks. Even the Bank of Japan, historically the most dovish of all, has kept its rate well below the U.S.

So why is the Fed resisting the global trend?

Because the U.S. economy—at least on paper—is still holding up. GDP growth is slow but positive. Unemployment is low. Consumer spending has softened but remains resilient. The Fed believes it has time to be cautious.

But this global divergence also creates risks. If the Fed waits too long while others cut, the dollar could strengthen materially, creating deflationary pressures abroad and corporate earnings headwinds for U.S. multinationals.

🗣️ The Fed’s Internal Divide

It’s not just the market and politicians applying pressure—it’s happening within the Fed itself.

Fed Governors Michelle Bowman and Christopher Waller have publicly floated the idea of a July rate cut if inflation remains tame. That’s an early sign of internal division. But Powell, as Chair, remains the final voice:

“There’s no rush. The economy is still strong. The labor market is resilient. We need to be confident that inflation is moving sustainably toward our target.”

In other words: the bar for a July cut is still high, but it’s not insurmountable.

Should we get a weaker-than-expected jobs report, or a drop in core inflation over the next six weeks, the door is open.

🧨 Trump’s Pressure Campaign and Plans for Powell’s Replacement

Of course, no conversation about Fed policy is complete without politics—especially this year.

Donald Trump has repeatedly attacked Jerome Powell, calling him “an average mentally person” and arguing that elevated interest rates are costing the country $900 billion a year in unnecessary debt servicing costs.

Trump's position is simple: cut rates now, and if inflation returns later, hike again. He believes the economic benefit and fiscal savings outweigh the risks.

And here's the kicker: if Trump is re-elected, he's expected to replace Jerome Powell well ahead of his May 2026 term expiration—possibly naming a successor as early as February 2025.

The goal? Undermine Powell’s credibility, front-run policy expectations, and install a Fed Chair who will deliver rapid rate cuts.

🧬 The “Lame Duck” Effect on Monetary Policy

Imagine this scenario: Powell signals no cuts until late 2025. But Trump pre-nominates a new Fed Chair—say, Stephen Moore or Judy Shelton—who says publicly: “As soon as I take office, we’ll slash rates.”

What happens then?

Markets would begin ignoring Powell entirely. His remaining 11 months would be treated as ceremonial. Instead, the bond and equity markets would anchor their expectations to the incoming Chair’s guidance, effectively turning Powell into a lame duck.

This creates a surreal dynamic where monetary policy is influenced not by actual policy changes, but by anticipated regime shifts.

💰 The Return of Liquidity: Easy Money Is the Real Driver of This Rally

If you’ve been wondering why the stock market is surging despite a slowing economy, softening earnings, and geopolitical risks—the answer is simple: liquidity is returning.

• M2 money supply is growing again, after contracting for much of 2023.

• The Fed’s balance sheet is stabilizing, and QT (quantitative tightening) is no longer aggressively draining reserves.

• Real interest rates are falling, as inflation-adjusted yields decline in anticipation of cuts.

This is the classic cocktail for a risk-on environment:

• Lower rates = cheaper capital = higher valuations.

• Weak dollar = stronger earnings for multinationals.

• Higher liquidity = more speculation in tech, crypto, and small caps.

In this environment, valuation discipline erodes, and momentum dominates.

🧐 What Should Investors Watch Going Forward?

If you’re navigating this market, here are the key factors to monitor:

1. Inflation Reports – Particularly the core PCE and CPI data. If these cool faster than expected, rate cuts could be pulled forward.

2. Labor Market Health – Powell has tied rate policy to labor market weakness. A softening jobs report could fast-track a cut.

3. Fed Commentary – Listen for dovish shifts in language at the July meeting, or public comments from Fed officials afterward.

4. Political Announcements – If Trump wins and announces a Fed Chair nominee early, markets will move fast to price in their policy bias.

5. Bond Market Action – The 2-year Treasury yield is the most sensitive to Fed policy shifts. Watch it closely for sentiment.

🎯 Final Thoughts: Markets Are Forward-Looking—But They’re Also Political

The stock market doesn’t care what’s happening today—it cares about what will happen tomorrow. Right now, investors see a future of lower rates, easier money, and a possibly friendlier Fed.

That’s why stocks are rallying.

But beware: the same forward-looking markets can reverse just as quickly if:

• Inflation surprises to the upside,

• Trump loses and Powell continues leading the Fed with hawkish resolve,

• Or the Fed cuts too late, triggering recession before relief arrives.

This is not a fundamentals-driven bull market. It’s liquidity-led, politically shaped, and increasingly speculative.

Investor Takeaway:Don’t fight the Fed—but also don’t forget who might be running it next year. Markets are celebrating the return of easy money, but inflation, politics, and credibility risks could complicate the narrative. Stay agile, stay informed—and never mistake a liquidity rally for a sustainable bull market.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

@Daily_Discussion @TigerPM @TigerObserver @Tiger_comments @TigerClub