Traders, tents and tantrums: A day at the White House policy circus

The White House policy circus

Wall Street danced to the rhythm of Washington’s offbeat drumbeat Wednesday, with traders doing their best to price chaos without losing their footing. The S&P 500 tiptoed higher by 0.1% in a session that was less a straight line and more a drunken zigzag—rattled by whispers that President Trump was preparing to fire Fed Chair Jerome Powell, then soothed by Trump himself pulling a Houdini and insisting it was all “conceptual.” Markets were willing to take the bait, at least for the day.

Early on, equities were hit hard as reports emerged that Trump had not only considered removing Powell but had reportedly drafted the termination letter. Cue the panic hedges, a brief spike in VIX, and traders eyeing the exits. But just as quickly as the storm gathered, the president changed costumes mid-performance and declared no immediate plans to show Powell the door. The selloff reversed, reluctantly. Think of it less as confidence and more like traders clutching the “Buy the Dip” playbook like a rosary.

The Nasdaq shook off a near 0.8% drop to eke out a 0.1% gain, while the Dow swung more than 400 points intraday before settling up 162. But this wasn’t about earnings or economics—it was about institutional credibility, or the potential unravelling thereof. Because firing a Fed chair for not cutting rates fast enough isn’t monetary policy—it’s a hostile takeover.

To the average punter, the market reaction may have seemed muted. But beneath the calm, tail hedgers were quietly dusting off their “Challenge to Fed Independence Playbook”. If Powell were actually pushed out, the playbook says: dollar down, risk off, and gold up. Sovereign risk isn't just for emerging markets anymore—Powell’s firing would be yet another crack in the crown jewel of dollar hegemony.

The bond market flinched but didn’t bolt. The 5s30s curve steepened to its widest since 2021, pricing in future policy uncertainty and a Fed that might suddenly find itself under new management, or no clear management at all. Meanwhile, the Fed’s Beige Book was a sideshow, with "slight improvement" in economic activity and a tone that said, “nothing to see here,” even as margins get squeezed and housing shows signs of topping out.

Curious how prediction markets are pricing the risk around Trump’s remarks on Powell—especially on Polymarket and Kalshi. Are they reading it as a genuine threat to Powell’s tenure or just political noise?

Inflation data did little to anchor the narrative. PPI was flat, but with inflation impacts from tariffs playing hide-and-seek in the data, the market knows the real price tag isn’t yet printed. As Powell himself warned, the Fed might’ve eased earlier if not for those same tariffs that Trump is wielding like a blunt-force instrument.

So what did markets really learn? That Powell is still in his chair—for now. That Trump isn’t afraid to tug on the Fed’s leash when the dogs of inflation aren’t barking too loudly. And that traders, jaded as they are, will ride the chaos until it turns into a crisis. This wasn’t a pivot or a panic—it was a teaser trailer for a policy thriller that’s still in production.

Stay tuned. If the director yells “Action!” on firing Powell, the next scene could be a full-blown market reckoning. Until then, enjoy the popcorn and mind the exit doors.

The traders view: The inflation tea leaves brewed another weaker blend

Markets strutted into Wednesday like a cocktail party where someone spiked the punch but forgot to tell the Fed. After yesterday’s soft-core CPI, this morning’s Producer Prices poured a tall glass of “nothing to see here,” giving lie to the tariff-flation bogeyman the academic set had been forecasting with all the fervor of a cult summoning a rate hike.

Instead, the inflation tea leaves brewed another weaker blend—one with barely a whisper of price pressure, let alone the shriek of economic overheating. But just as traders were settling in for a nice, boring session, in waltzed the headline risk—cravat loose, eyes wild—with Powell and Trump once again doing their two-man kabuki of “You’re fired… no wait, you’re not.”

Cue the dance in rates. Two-year yields dove as traders priced in rate cuts like they’d just spotted a Fed lifeboat. The long end, meanwhile, huffed higher—maybe still nursing flashbacks from the last inflation panic or simply confused by Bostic’s latest riddle: inflation pressures are rising, we’re at an inflection point, tariffs might bite by 2026... so, let’s just wait? Got it.

The S&P 500 spent the day like a dog chasing its tail—early losses on Powell-firing fears reversed once Trump said the axe wasn’t falling yet. The Russell led the charge like a terrier off leash, while the Nasdaq barely found its shoes. Momentum names patched up last week’s bruises, while the most-shorted basket kept moonwalking, now pushing three-year highs. A short squeeze this persistent deserves its own ticker.

ETF volumes on the NYSE surged to their highest in weeks, but liquidity thinned out like traders ghosting top-of-book quotes. The top-of-book depth shrank faster than Powell’s public job security.

Meanwhile, Goldman's hedge fund VIP list took a beating, slipping into the red for the year—longs limping, shorts laughing. If that isn’t a picture of this market’s bipolarity, nothing is.

Over in Treasuries, trading looked like someone dropped a squirrel on the keyboard. The curve steepened, the 30-year yield briefly spiked over 5% on Powell firing noise, then slunk back under the weight of retraction. Rate-cut odds for 2025 flipped around like a day trader with too many screens—up, down, sideways—while 2026’s odds sank like they saw something out past the horizon they didn’t like.

The dollar? It went on a ride. First, it puked on the Powell headline. Then it sobered up and clawed back most of the move. Still closed softer on the day, but at least it didn't finish on the floor.

Gold mirrored the Powell drama like a faithful sidekick—spiking on the chaos, then drifting back, but holding a green close. Don’t call it conviction. Call it reflex.

Oil did a round trip worthy of a Formula 1 pit stop—early weakness, broader market jitters, reversed sharply on surprise inventory draws, giving WTI just enough fuel to eke out a green finish. Not exactly fireworks, but the market still respects a tight crude balance sheet.

And then there’s crypto, the asset class that never met a headline it couldn’t throw a party for. Bitcoin got its groove back after the House advanced “Crypto Week,” while Ethereum blew the doors off, vaulting past $3370 and once again outpacing its bigger brother. ETH continues to trade inflation expectations like it’s the bond market’s punk cousin, while BTC grinds higher on the slow-drip of global liquidity.

Whether Washington keeps handing out candy or comes for crypto’s lunch remains to be seen. For now, the bulls are licking frosting off their fingers, pretending they didn’t just hear the oven timer ticking.

In sum: inflation data whispers dovishness, Powell survives another news cycle, and traders? They’re still chasing gamma, short squeezes, and narratives—whichever comes first.

My Bostic rant time

Let’s be brutally honest—if you have the privilege of sitting in one of the chairs around the table at the Eccles Building, entrusted with steering the world’s most-watched central bank, stepping in front of a camera or onto a podium without a functional grasp of how tariffs operate as a de facto VAT on the U.S. economy… you’re better off declining the interview.

Assuming the proposed tariff regime amounts to a static 15% effective rate, and factoring in the typical pass-through mechanics assumptions—roughly half absorbed by foreign exporters, U.S. importers and retailers, and the rest landing squarely on the shoulders of consumers, you’re looking at what effectively becomes a one-off 7.5% consumption tax, not staggered. It’s a hit that eventually rolls off the Fed and trader ledger, given the base effects and the way CPI is calculated and consumed by the markets.

And if you don’t understand that? If you're still talking about being “data dependent” or insisting “tariff effects will take a year to filter through,” then you’re not illuminating anything—you’re fogging the windshield.

So, if you're going to hold court on national television with a Fed badge pinned to your chest, it's best to come armed with more than platitudes. Because credibility is a finite resource. And in a market primed for volatility, tone-deafness isn’t just bad optics—it’s policy malpractice.

On the other hand, if you do have a credible metric—something concrete, not vibes or vintage forecasts—that shows tariff-induced inflation is more than a one-off bump and could morph into a persistent threat to price stability, then by all means, explain it. Lay it out. Show your work.

Because there are a lot of folks out here—investors, business owners, households—trying to navigate a market warped by policy fog and headline whiplash, wondering what exactly it is you’re getting paid for. If the tariff tax is going to bleed through the supply chain, entrench itself in consumer inflation and kick off a wage-price echo, say so. We’ll adjust our risk. We’ll price it in. But don’t just nod solemnly and recite “data dependent” as if it were a magic spell that wards off accountability.