Trump’s Intel Stake & Fed Shakeup Explained

The US stock rally took a breather on Monday, 25 August, after Federal Reserve Jerome Powell took on a more dovish stance last week during his Jackson Hole speech. As traders prepare for a potentially hot PCE reading on Friday, 29 August, and FOMC officials still argue for a September interest rate cut,  US President Donald Trump announced he would fire Fed Governor Lisa Cook over mortgage loan improprieties, which weighed on markets on Tuesday. Gold (XAU) rose as much as 0.6% as the dollar (DX) fell following the announcement, with Asian stocks and European stocks also on the back foot. 

Trump’s move comes after repeated attempts to fire the Fed Chair for not cutting interest rates. Although Fed Funds currently show an 83% chance of a September cut, Trump’s announcement weighed on market sentiment due to the perceived erosion in Fed independence. But this was not the only problematic announcement of interference in free markets. Trump also announced on Monday that the US government would take a 10% stake in Intel (INTC), and called for many more such deals, as he aims to build a US Sovereign Wealth Fund.

With a light economic calendar today, Tuesday, investors wait for Nvidia’s (NVDA) quarterly earnings due on Wednesday, 27 August, to gauge whether the AI trade can continue reaping rewards. Looking further down, the Fed’s favourite  PCE reading on Friday might show whether the current odds of a September rate cut can be sustained. 

TL;DR

• Trump announces the firing of Fed Governor Lisa Cook over alleged mortgage fraud.

• The US government announces a 10% stake in Intel, worth $8.9 billion.

• Markets react with caution; gold rises, dollar falls.

• Concerns grow over Fed independence and government intervention.

• Investors await Nvidia earnings and PCE inflation data for direction.

Fed Independence Under Fire After Trump Ousts Cook

In a series of moves to increase pressure on Democrats and the Fed, Trump announced the firing of Lisa Cook in a move to gain more control over the central bank, raising uncertainty about Fed independence and eroding US credibility as Trump renewed tariff threats. Trump previously threatened to fire Powell without success so far in removing him as the Fed Chair, but did fire the Labour Department head for allegedly manipulating jobs statistics.

Trump claimed that the Federal Housing Finance Agency head, Bill Pulte, found evidence on Cook that implicates her in mortgage fraud. “Cook must resign, now”, said Trump last week, for seeking mortgages on two primary residences, one in Michigan and one in Atlanta. Following Trump’s Monday announcement, Cook said, “[he] has no authority to do so [...], I will not resign.” It is, in fact, unclear whether Trump has the legal authority to fire Cook except for “cause.”

A new position at the Fed would allow Trump to shape a more dovish FOMC board following Adriana Kugler's resignation and subsequent nomination of Stephen Miran, a Trump appointee. Trump’s move adds to the prospect of rate cuts and a weaker dollar. Barclays (BARC-L), BNP Paribas (BNP.PA), and Deutsche Bank (DBK.DE) are expecting a September cut, with Morgan Stanley (MS) expecting a second cut this year in December in a revised forecast.

Besides the Cook showdown, Trump threatened to impose more tariff threats as part of his strategy to get more companies to produce at home, which appears to include a Sovereign Fund with stakes in US companies.

Trump Admin Takes 10% in Intel in New Industrial Policy

Trump made deals with chipmakers Nvidia and AMD (AMD) earlier this month to pay 15% of revenues generated from Chinese sales in return for export licenses to actually sell chips in China. In a new landmark deal for the US government, the Trump Administration announced it would take a 10% stake worth $8.9 billion in chipmaker Intel. The Trump Administration will convert ~$9 billion of former President Joe Biden’s 2022 Chips Act funds into its stake in Intel. $5.7 billion worth of 275 million shares will be issued at $20.74 today, 26 August, with a second and third tranche for a special military project and as a warrant. However, analysts are sceptical about Intel’s cash flows. (Source: Barron's)

Trump did pledge to make more of these deals with a focus on chips, with an aim to gain concessions from corporate leaders, a new form of industrial policy little reminiscent of the Chrysler and General Motors (GM) rescue in the aftermath of the GFC. Notably, chip companies TSMC (TSM)  and Micron (MU) received US funds via the Chips Act, but they will not share equity with the US Administration. Instead, they will invest more in the US, where the Administration may benefit from taking stakes in smaller US companies.

For investors, one risk from such deals is the government’s potential reluctance to exit if the companies are not doing well, as it would involve taxes. Another is the political risk of interventions in the US economy. 

What’s Next for Investors? Key Data Ahead

For the remainder of the week and before the next FOMC meeting on 16-17 September, investors are tuned to the next round of inflation data in PCE on Friday. Last month, hotter inflation raised questions about whether the Fed should cut rates in September, though the odds have increased again following Powell’s JHS remarks. Ahead of Friday, Nvidia’s earnings on Wednesday will provide investors with insights into whether the AI trade can continue powering the tech rally. Will NVDA earnings “turbocharge” the AI trade following JHS, or will “swamp” remain to be seen?

*Past performance does not indicate future results. The above are only projections and should not be taken as investment advice.