Daily Commentary

MarketMinder’s View: Here is another court case that bears watching for investors, as it potentially affects the Fed’s governance. Before we get into that, though, the article naturally dives into politics, so please note MarketMinder favors no politician or any political party. Now, for the particulars. The question at hand: Will the Supreme Court upend a precedent that restricts the presidents’ ability to fire independent agency heads without cause? This article explores that question—and the implications if this extends to the Fed chair. To be clear, the Fed isn’t expressly on the docket in this case. The suit is about members of the National Labor Relations Board and Merit Systems Protection Board President Donald Trump tried firing in February. But some think it may extend to the Fed. “The Federal Reserve Act says [Fed governors] can only be fired for cause. Scholars believe the Supreme Court entrenched that principle in 1935, when it barred Franklin Roosevelt from firing members of the Federal Trade Commission for purely political reasons because, unlike regular executive branch employees, they served a quasi-judicial role. But in February, the Trump administration said the court should overturn that precedent, dubbed Humphrey’s Executor, for intruding on the president’s control over the executive branch. ... Some scholars think even if the justices overturn Humphrey’s Executor, they will find a way to protect the Fed. If they don’t, they would make the central bank a fundamentally different institution.” Now, we think the handwringing in the article’s second half about the possible loss of the Fed’s independence is overwrought. Not only is the Fed’s economic influence overrated, we also see a compelling case that central bank independence is largely imaginary. More imaginary than just the example cited here, of Richard Nixon or LBJ exerting pressure in private, as the president renominates the Fed chair one year into his or her term. And many presidents have commented in public about the appropriateness of monetary policy. We also aren’t so sure you can draw a straight line from this case to the Fed anyway. But we are monitoring it and the precedent set here, as any changes could have unintended consequences worth tracking.

MarketMinder’s View: China’s Q1 GDP grew 5.4% y/y, as “Chinese exports surged more than 12% from a year earlier in March and nearly 6% in U.S. dollar terms in the first quarter, as companies rushed to beat Trump’s tariffs. That has supported robust manufacturing activity in the past several months. China’s industrial production rose 6.5% from a year earlier in the last quarter, led by a nearly 11% increase in output of equipment manufacturing. The strongest growth was in advanced technologies, such as production of battery electric and hybrid vehicles, which jumped 45.4% year-on-year.” Of course, that is all backward looking and consistent with other recent data showing nations worldwide have been frontrunning tariffs. Looking forward, outlooks can give us a sense of expectations. As one financial institution claims here, looming tariffs “could cause China’s exports to the United States to fall by two-thirds in coming months and that its global exports could fall by 10% in dollar value. It cut its forecast for economic growth this year to 3.4% from an earlier 4%. It expects growth to slow to 3% in 2026.” Perhaps that happens, perhaps not, and we don’t dismiss the possibility that today’s tariffs escalate and roil global growth. But we think it is worth noting markets have been pricing in worst-case scenarios recently, and most (including the forecasts shared here) see weaker growth as inevitable. That suggests the potential for a better-than-appreciated—or maybe more benign-than-feared—outcome hasn’t been priced yet.

MarketMinder’s View: Tariffs may yet wither under widening legal scrutiny. Not only have several business groups banded together to launch lawsuits across the nation, but the state of California is now joining the fray. (Please note here that MarketMinder is nonpartisan, favoring no party nor any politician and seeking solely to assess political developments’ potential market effects.) Like the other lawsuits, California’s takes issue with 1977’s International Emergency Economic Powers Act (IEEPA), which the Trump administration invoked for its unprecedented blanket tariffs, because it “does not authorize the president to impose tariffs under a declared emergency, noting specifically that the word ‘tariff’ does not appear in the statute at all. Additionally, the suit argues that no president before Trump has relied on IEEPA to impose tariffs in the 50 years since it was enacted. [The plaintiffs] are asking the court to immediately halt enforcement of the tariffs, invoking the Supreme Court’s ‘major questions’ doctrine holding that the executive branch and federal agencies must have clear authorization from Congress when taking actions that have significant economic and political consequences.” We don’t know how the courts will decide, but the legal blowback may leave much of this tariff fracas moot. Another reason, in our view, why reality may turn out better than expected. This is worth watching, among tariffs’ other legal challenges.