Powell appearance as Bessent calls for Fed review

European markets are in the red today as traders increasingly gear up for a two-week period that will likely see risk of sentiment build as we approached the 1 August tariff deadline. Coming hot off the heels of record eyes in US indices, the justification for such pricing will increasingly come into question in the absence of any significant breakthrough in trade negotiations. For Europe, the insistence that the EU stands ready to retaliate with a €21 billion package of counter measures will do little to improve sentiment. Whilst the economic data has largely been relatively upbeat over recent weeks, it is likely that the worst is yet to come if we see Trump’s tariffs surge at the end of the month. One positive implication of the tariff policies has been the income generated through the current import taxes, with the rise of the dollar and falling yields partly linked with the billions of fresh income levied towards paying off the debt.

The latest public sector net borrowing figures paint a troubling picture for the UK’s fiscal outlook. Borrowing surged to £20.7 billion in June 2025—£6.6 billion higher than forecast—driven in large part by a sharp increase in debt interest payments, which hit £16.4 billion due to inflation-linked bonds. This reinforces earlier Bank of England warnings about the long-term risks inflation poses to public finances. For Chancellor Rachel Reeves, the data signals a serious credibility test: her Budget assumptions relied on economic growth, yet GDP shrank by 0.1% in May, undercutting tax revenues just as spending pressures rise. While the OBR anticipates some relief in H2 thanks to seasonal boosts like capital gains tax receipts and reduced benefit outlays, the near-term outlook suggests Reeves may have to line up further tax hikes in the Autumn budget.

Today brings a fresh appearance from the under-fire Jerome Powell, with the Fed Chair having been referred to the DoJ by Congresswoman Anna Luna. Amid calls from Trump for Powell to cut interest rates, the pathway to his removal in absence of a resignation clearly revolves around claims of financial misappropriation in relation to the $2.5 billion Fed building renovation. With Scott Bessent stating that the formal process for determining the next Fed chair is already underway, we are likely to either see Powell pushed out or a prolonged shadow chair scenario play out. Notably, Bessent’s call for a probe into the “entire Federal Reserve institution” would have you believe that there is more to this than simply wishing the central bank would cut rates despite the obvious justification for patience. However, markets would likely see beyond such pretext, with the perceived stability of the US coming into question if Trump replaces Powell with a yes man (or woman).

(This story was corrected on July 22 at 09:30 GMT to change the headline as it originally misspelled the name of US Treasury Secretary Scott Bessent.)