Donald Trump’s shadow influence on the Federal Reserve is creating a fascinating dynamic in today’s market. the S&P 500 appears resilient, even as liquidity concerns intensify, with repo rates spiking and the bond market and dollar perhaps signaling a slowdown.We examine the former president’s potential impact on policy, analyzing how “jawboning” is influencing rates and disrupting typical market correlations. Declining rates and a weakening dollar paint a picture of economic shifts that News Directory 3 is closely monitoring. We assess how mega-cap stocks, including Meta, are now overbought. Discover what’s next for the secondary_keyword, and if the market’s current bullish outlook can be sustained.
Trump’s Shadow Fed Role: Markets Defy Gravity Amid Liquidity Concerns
Updated July 1, 2025
Former President Donald Trump seems to be positioning himself as a shadow federal Reserve chair, suggesting the overnight rate should be at 1%. The market’s reaction to this remains to be seen.
With other measures seemingly ineffective, “jawboning” remains an option to influence rates. however, the long end of the yield curve may not respond unless the Fed initiates quantitative easing (QE) or yield curve control.
Currently, this jawboning appears to be working, as both rates and the dollar are decreasing. This is disrupting the typical correlation between bonds and stocks. Rising stocks and rates are usually seen as economic strength, while rising stocks and declining rates are viewed positively due to lower rates expanding valuation multiples.
The declining dollar is another factor. The bond market and the dollar might be signaling a potential economic slowdown that the stock market isn’t reflecting. Economic data released this week will be crucial in shaping this narrative and guiding future actions regarding market liquidity.
The average overnight repo rate rose to 4.57% at the end of the quarter, the highest since December.Reverse repo volumes also surged, reaching $461 billion. Despite this, the stock market has remained largely unaffected.
The Standing Repo Facility (SRF) saw $11 billion in activity as the overnight rate exceeded 4.5%. This level of activity in the SRF highlights the tight conditions in overnight markets, with the Fed acting as a liquidity provider.
Despite this liquidity tightening, the market has remained calm. Though, liquidity impacts frequently enough have a delayed reaction, influencing the yen carry trade and perhaps dragging below 140.
Mega-cap stocks, including Meta, are now overbought, trading above their upper Bollinger Band with a relative Strength Index (RSI) over 70.
