MIKE TOWNSEND: August in Washington is traditionally the slowest month of the year. Congress goes on recess for five or six weeks. Regulatory agencies dial back their work, with public meetings few and far between. Staffers take their vacations in advance of a busy fall.
But August 2025 was the exception to the rule, because President Trump took advantage of the quiet to unleash a barrage of policy actions and pronouncements.
It's been dizzying to keep up with it all. Just in the past six weeks, the president has fired the head of the relatively obscure Bureau of Labor Statistics after a disappointing jobs report; called up the National Guard to patrol the streets of D.C. and threatened to do the same in Chicago or New Orleans next; purchased a government stake in one of the country's most venerable technology companies; and taken the unprecedented step of firing a sitting governor at the Federal Reserve, to name just a few of the norm-shattering, headline-making actions.
But in the face of a daily storm of policy pronouncements and actions, the question for investors is a simple one: Does any of it matter? The S&P 500® is up more than 10% year to date. It's up about 3% since the first of August. Will anything coming out of Washington threaten that trajectory this fall?
Welcome to WashingtonWise, a podcast for investors from Charles Schwab. I'm your host, Mike Townsend, and on this show, our goal is to cut through the noise and confusion of the nation's capital and help investors figure out what's really worth paying attention to.
On today's episode, I want to look at how the market is reacting—or not reacting—to these big policy developments and consider which ones investors should be keeping an eye on as possible market movers down the road. I'll share the state of play on five issues that the market has been pretty sanguine about so far, but where I feel there is a potential risk for investors. I'm certainly not projecting a sharp turn to the downside based on these issues, but I do think that as investors we should be aware of potential sources of market reaction. And I want to lay out a timeline for when we may get some clarity that the market is yearning for.
Let's begin with the Federal Reserve, which has been in the headlines for weeks and will likely remain there for the foreseeable future. The Federal Open Markets Committee, or FOMC, meets next on September 16 and 17, and it is almost universally expected to reduce rates by 25 basis points, which would be the first rate cut of 2025 after 2024 ended with three straight cuts, totaling 100 basis points.
Last month, Fed Chair Jerome Powell, in his annual speech at the Fed's conference in Jackson Hole, Wyoming, sent strong signals that a rate cut was coming, pointing specifically at a softening jobs market. He said then that "downside risks to employment are rising, and if those risks materialize, they can do so quickly in the form of sharply higher layoffs and rising unemployment."
Late last week, the August jobs report supported Powell's comments. The Bureau of Labor Statistics reported that just 22,000 jobs were created in August, well below economists' expectations of 75,000. The unemployment rate ticked up to 4.3%. Now, relative to history, that's not high, but momentum and the directional trend are the important things to watch. This is the second straight month that the rate has risen. Once unemployment starts rising, it can accelerate, and that can be difficult to reverse in the short term.
In addition, revisions to previous months showed that, in June, the economy lost 13,000 jobs, the first negative month since December of 2020. Since the beginning of the year, the economy has added fewer than 600,000 jobs, the fewest in the first eight months of a year since 2009, with the exception of the COVID year in 2020.
It puts the Fed in a tricky position because the two things it focuses on—employment and inflation—are in competition with each other right now. Powell has also expressed concern about the upward movement in inflation as the result of tariffs, though he and other experts have acknowledged that inflation is rising more slowly than many expected.
All of it points to a near-certain rate cut next week. There are even some analysts who think a larger 50-basis-point cut is on the table, but we don't think that is likely. Powell indicated recently that the Fed will be slow and careful with cuts because of the risk of accelerating inflation.
But what's even more confusing than the economic signals the Fed is wrestling with is the personnel situation at the central bank.
There are two separate but related things happening. The first is a rushed confirmation process to fill the unexpected vacancy at the seven-member Board of Governors, and the second is the president's attempt to fire one of the remaining six governors.
Let's start with the vacancy. Fed Governor Adriana Kugler unexpectedly resigned on August 8 to return to teaching, about five months before her term was scheduled to expire at the end of January 2026. The president nominated Stephen Miran, who currently serves as the chair of the White House Council of Economic Advisers, to fill the seat for the short term, just until the end of January.
Last week, the Senate Banking Committee held Miran's confirmation hearing, which was very contentious. Miran has been clear that he thinks significant rate cuts should be the Fed's priority, and he has a number of comments and writings in his past in which he questions the importance of Fed independence. That said, he stated clearly in the hearing that Fed independence is paramount. But he raised eyebrows when he told senators that he planned to take an unpaid leave of absence from his White House job if he's confirmed to the Fed, rather than resign. That means he would technically be an employee of the White House while serving on the Fed board. Optically, it's difficult to sort out how that would insulate Miran from political pressure. One Democratic senator at the hearing called the arrangement "ridiculous."
But I expect Miran to be confirmed on a party-line vote. The question is whether that can get done before the September 16 start of the FOMC meeting. It would be highly unusual for the Senate to confirm someone for such a high-profile role that quickly, but it's possible.
Meanwhile, a drama with even more profound implications for the Fed is unfolding with Lisa Cook. After months of threatening to fire Powell, in August, Trump turned his attention to Cook, who was nominated by former President Joe Biden and has served as a governor since May of 2022. On August 25, Trump fired Cook, citing allegations that she had committed mortgage fraud prior to being nominated to her Fed role by indicating that two different properties she owns were both her primary residence. The Justice Department has opened an investigation, but Cook has not been charged with a crime. The Federal Reserve Act, which dates back to 1913, allows the president to fire a Fed governor only "for cause," but it does not define what constitutes "for cause." No previous president has ever tried to fire a Fed governor.
Cook sued the president on August 28, saying that the president did not have the authority to fire her, and a preliminary hearing was held. On September 9, a judge ruled that Cook's due process was violated and that she could continue to serve as a Fed governor while the case proceeds through the legal system. She can continue to go into work every day and will be a voting member at next week's FOMC meeting.
I don't think it's possible to overstate the importance of the Cook case. If the court decides that the president can fire a member of the Federal Reserve, many experts across the political spectrum have said that it would undermine the entire concept of the Fed in a way it may never recover from. While there may be some unique aspects of the Cook case, as there are allegations about mortgage fraud, many still believe a removal would weaken Fed independence.
The Fed was designed specifically to be independent from politics. Now, we all know that the Fed and its governors are not immune to politics. They are appointed by politicians. They are people who have their own views and biases. But the Fed was set up with its seven members having staggered 14-year terms—the longest terms of any government position outside of the judiciary—precisely so that they would be immune to the whims of this president or that president. The terms are designed to be longer than one president can serve. And the Fed's independence was codified in 1935 and solidified in a 1951 accord with the Treasury Department. If it becomes easier for a president to hire and fire Fed governors, the central bank may become just another arm of the White House. And presidents of both parties could change members and push their agenda.
It's likely to take a few months for the court case to play out. A key question is what constitutes firing someone "for cause." The first judge to rule on the matter determined that "for cause" is "limited to … a governor's behavior in office and whether they have been faithfully and effectively executing their statutory duties," and that removal from office cannot be based on conduct before they took that office. The case is widely expected to eventually reach the Supreme Court."
Interestingly, earlier this year, in an unrelated case about the president's ability to fire the heads of other independent agencies, the Supreme Court went out of its way to note that the Fed's independence is a special case. The court described the Fed as a "uniquely structured, quasi-private entity that follows in the distinct historical tradition of the First and Second National Banks of the United States." Some analysts have theorized that the court was laying the groundwork for preserving the Fed's independence, while others have said that the court has painted itself into a corner with a twisted bit of logic. Apparently, the answer will be revealed as the Cook case proceeds.
I think this is precisely the reason that the markets have not reacted much to the Cook firing. Investors understand that the question of her firing and the president's power to fire Fed governors in general will be decided by the highest court eventually. For now, the markets appear willing to wait for that to happen. But a decision that gives the president freedom to fire Fed governors would likely trigger a negative market response. Investors could lose confidence that monetary policy decisions are being made free of political pressure. If a president were able to pick Fed governors based on their desire to keep interest rates low for political reasons, markets would likely worry about inflation, fixed income investors would likely seek higher yields to take on additional inflation risk, and the dollar would likely weaken. Some worry that such a scenario could upend the broader financial system. Central bank independence is a core element of keeping inflation low and creating long-term, stable economic growth. Markets seem hopeful that a challenge to that principle can be avoided.
I want to pivot to another court case I'm watching carefully that I think has similarly outsized potential ramifications for the markets—and that's the battle over the president's tariffs.
As we head into the fall, there is a dizzying array of tariffs in place. There are the so-called "reciprocal" tariffs that went into effect last month, a series of country-by-country duties on imports from nearly 100 countries. We have a separate group of tariffs on imports from Brazil, Canada, China, India, and Mexico. We have product-specific tariffs on things like steel, aluminum, copper, cars, and car parts. Overall, the Yale Budget Lab calculates that, as of the beginning of September, consumers are facing an average effective tariff rate of 17.6%, the highest in the United States since 1935.
Yet, inflation, while ticking up slightly, has not risen nearly as much as many expected. There are a variety of reasons for that. Framework agreements with several of our largest trading partners have capped tariffs for them at 15%, lower than was expected. Companies are doing everything they can to delay price increases for fear of losing out to competitors. And a lot of goods imported into this country are exempt from tariffs, particularly if they come through Canada or Mexico. Barclays estimated in June that only about 48% of imports that month were subject to tariffs. Of course, that was before the reciprocal tariffs went into effect in August, so that number is expected to jump considerably higher in the coming months. But it at least in part explains the relatively low impact everyday consumers have seen thus far in terms of prices in stores.
But in the recent earnings season, more companies warned that tariffs could start to have a real impact on their business in the coming months. In an August survey of manufacturers by the Dallas Federal Reserve Bank, 71% said that tariffs had already had a negative impact on their business. And stories are starting to pile up of businesses reluctantly acknowledging that price hikes are coming.
Which brings us to the critical court case. Back in May, the Court of International Trade ruled that many of the president's tariffs were imposed unlawfully. Specifically, the case focuses on the reciprocal tariffs and some of the tariffs on imports from Canada, China, and Mexico. The administration appealed the ruling, and the Court of Appeals left the tariffs in place while the case was heard.
On August 29, a divided appeals court ruled 7 to 4 to uphold the Court of International Trade's decision. It delayed the effective date of that ruling until October 14 to give the administration time to appeal to the Supreme Court. The administration has done so and has asked for an expedited process to get the case heard as soon as possible.
But "expedited" is an elastic word when it comes to Supreme Court cases. Even the administration suggested that the court hear the case in early November—which is after that October 14 date when the appeals court decision would go into effect—and a decision could take months after that, perhaps as long as next summer.
At issue is the president's use of emergency powers—the International Emergency Economic Powers Act of 1977, often referred to as IEEPA. It gives the president authority to declare an economic emergency and take a series of specific steps. But the law does not mention tariffs, duties, or taxes among those actions. The president has declared that fentanyl imports into the United States and U.S. trade deficits with other countries constitute the emergencies for which he has imposed tariffs. Two courts have sided against him.
What it all means for companies is a lot more uncertainty in the short and long term. Companies can't know now whether tariffs will be in effect after October 14. They don't know whether they might be paused and reinstated after the Supreme Court makes its decision. They don't know whether there might be refunds coming for tariffs they've paid to date. Treasury Secretary Scott Bessent said last weekend that if the court rules against the administration about half of the tariff revenue collected this year might have to be refunded. By some estimates, that could be as much as $80 billion. So it's possible that companies will get back some of the money they have spent on tariffs in 2025—another thing they can't exactly plan for. It's no wonder companies are having a hard time setting expectations for analysts and investors about the remainder of this year, let alone 2026 and beyond. Because U.S. companies bringing goods into the country are the ones paying the taxes, halting the tariffs and/or returning tariff money would be a positive for those companies and the market could react positively.
A third issue that I'm keeping my eye on is the threat of a government shutdown. Congress returned to Washington last week after a five-week break for August, and this is the most pressing item on its agenda. The government's new fiscal year begins on October 1, and thus far, Congress has not passed any of the annual funding bills. If it seems like I talk about this every September, it's because, well, I talk about it every September.
This year is a little bit confusing to people because the One Big Beautiful Bill that became law in July had so much tax and spending in it. But that law has nothing to do with the annual process of funding government operations.
Listeners have heard me say before on this podcast that perhaps the most basic function of Congress is to pass the 12 appropriations bills each year that fund every government agency and program. It's been nearly 30 years since they passed all 12 bills by the September 30 deadline. Instead, Congress usually passes a temporary extension, known as a "continuing resolution," to keep the government open and operating while negotiations continue.
If they don't, then you have a potential government shutdown. Thus far in 2025, Congress has passed exactly zero of the 12 bills. The two parties are trying to negotiate a short-term deal to extend funding to perhaps November. But these negotiations are more complicated than usual this year, and here's why.
Democrats are concerned that if they negotiate with Republicans and reach a deal on the appropriations bills, then down the line Republicans could again pass rescissions bills to claw back funding they don't like. Precedence for this was set in July, when Congress passed the first rescissions bill since the late 1990s, voting to claw back about $8 billion in foreign aid funding and about $1.1 billion in funding for the Corporation for Public Broadcasting, which supports public television and National Public Radio. That money was already approved by Congress.
In the Senate, appropriations bills require a 60-vote supermajority to pass. Republicans only have 53 seats, so they need Democrats to pass the bills. But rescissions bill to undo funding only need a simple majority of 51 votes to pass—that's why Democrats are concerned. They think that Republicans will agree to something just to get their votes, then come back later and undo the funding they don't like.
But Democrats aren't exactly eager for a shutdown, either. When all or part of the government shuts down, it's the administration that determines who is an "essential" employee and should stay on the job. The men and women who watch nuclear missile silos—they are essential. TSA agents at the airport. The FBI. National security and defense workers in key roles. These are the types of people who are typically required to keep showing up to work during a shutdown.
Democrats are concerned that, in a shutdown this year, the president would designate as essential various functions and even specific people that he likes, while designating the Democrats' priorities as non-essential. It creates a real conundrum for Democrats, who want to show their base that they are standing up to the Republicans but don't want to give the president an opportunity to pick and choose who goes to work.
All of that being said, I think a government shutdown is a real risk—maybe not on October 1, but perhaps later this fall.
Now, if you are wondering what the markets make of all this, keep in mind that, historically, government shutdowns have not been big market movers. In fact, the S&P 500 has actually risen during the last five shutdowns, including during the 35-day partial shutdown that took place in late 2018 and early 2019 during the first Trump presidency.
But if we do have a shutdown, I could see the markets being more concerned this time, particularly the bond market. A shutdown would likely be yet another piece of evidence, particularly to foreign investors, that the United States just doesn't have its act together when it comes to managing its fiscal affairs. The credibility of U.S. institutions has taken a hit this year, and this would be another blow.
Another issue Congress is trying to sort out is oversight of the cryptocurrency industry. Over the summer, Congress passed the GENIUS Act, the first-ever crypto bill to be signed into law. That legislation regulates stablecoins, a type of cryptocurrency that is pegged to the dollar.
The House of Representatives approved a second bill, known as the CLARITY Act, that seeks to create a broader regulatory structure for digital assets, not just stablecoins. The House bill was notable because of a rare hint of bipartisanship—it passed with 294 votes in favor, including 72 Democrats.
That gave it some momentum heading over to the Senate. Senate Banking Committee Chairman Tim Scott, a Republican from South Carolina, released his version of the legislation late last week and indicated that the committee would consider the bill on September 30. But its prospects are not certain. At the moment, there are no Democrats on board with Scott's version of the legislation, though there are several in talks with their Republican colleagues behind the scenes. Ultimately, the bill will need some Democrat support in order to reach the 60-vote supermajority needed to overcome a filibuster on the Senate floor.
One of the flies in the ointment on this legislation and on the regulation of cryptocurrency generally is the turmoil at the Commodity Futures Trading Commission, the CFTC. The CFTC has long been the little brother of the regulatory world, much smaller and always in the shadow of the SEC. But the GENIUS Act that became law in July and the CLARITY Act as passed by the House give the CFTC a lead role in overseeing and regulating the crypto industry. So it's about to have a much bigger presence in Washington and beyond.
Which is what makes it so confusing that the CFTC is in complete disarray. Like the SEC, the CFTC is led by a five-member commission, usually with two Democrats and two Republicans and a chair who is nominated by the president and provides the 3-2 majority for the party in the White House.
But Democratic Commissioner Kristin Johnson resigned last week, leaving the CFTC with a single commissioner, Acting Chair Caroline Pham. And Pham herself has announced that she, too, will resign once her successor is confirmed by the Senate.
President Trump months ago nominated Brian Quintenz to be the next chair of the CFTC. Quintenz, who served as a commissioner during the first Trump presidency, is now an executive at a crypto company. His confirmation hearing before the Senate Agriculture Committee was relatively routine. But the committee vote to confirm Quintenz was postponed twice in July and has not been rescheduled, amidst reports that some in the crypto industry are not happy with his nomination. Now there are rumors that the president will pick someone else.
Congress has already delegated significant new authority to the CFTC and, if the CLARITY Act passes either later this year or early next year, the CFTC stands to get even more authority, along with what is likely to be a big bump in its budget to accommodate those new responsibilities. Yet the agency has four vacant seats, no certainty that the current nominee for chair will ever get a vote on his nomination, and no sense of urgency from the White House on addressing any of it. I'll keep my ears open on this, but it certainly is an odd start to a new era of crypto regulation in Washington.
The crypto industry has made dizzying progress this year in getting Congress and the White House engaged in trying to put a regulatory structure in place that they hope will help give skeptical investors more confidence in the industry—and boost cryptocurrency as a legitimate and useful method of payment. Uncertainty about whether the CFTC is up to the task, or even has enough members to function, undermines some of that confidence. I think the outcome here is unlikely to have broad market implications. But it may contribute to continued volatility in cryptocurrency-related investments, which is already high, as the industry and Congress wrestle with how to put guardrails in place for investors and digital asset users. And it's likely to have significant implications for cryptocurrency's long-term goal of becoming an increasingly accepted part of the mainstream economy.
There's one other issue that I think investors should be paying attention to—and there is a possibility that when we look back on 2025, this one will be the one that had the biggest impact of all on the markets. Last month, the White House announced that the federal government has taken a nearly 10% stake in Intel Corp., the struggling technology giant that is the only company to make advanced microchips here in the United States. The government made an investment of nearly $9 billion, purchasing more than 433 million shares of common stock at a discounted price. The stake was funded with $5.7 billion in CHIPS Act grants that had been awarded but not yet paid, and $3.2 billion from a Pentagon program. It's a passive investment with no board seats or other governance rights.
It's caused quite a bit of concern across the political spectrum. It comes on the heels of others steps the federal government has taken to get more directly involved in private companies. An agreement was reached last month that gives the government 15% of the revenue from the chip sales to China by Nvidia and Advanced Micro Devices, or AMD. Earlier this year, the government took a so-called "golden share" of U.S. Steel as a part of Nippon Steel's $15 billion buyout of the American company. That means that the government has to be consulted by the company on big strategic decisions, like closing a plant, reducing jobs, or making a big investment, and can essentially veto decisions it doesn't like.
Further, the administration has said that more deals like the Intel arrangement may be coming, with Commerce Secretary Howard Lutnick specifically citing the defense industry as ripe for a similar arrangement to the Intel agreement.
It raises a lot of questions about the government's level of involvement in private industry. In recent times, the only somewhat similar government intervention came during the great financial crisis that begin in 2008, when the government took stakes in auto companies and banks to help keep them financially afloat. But once the crisis was averted, the government gradually divested itself of all those shares.
This is clearly a new direction for U.S. policy, and it's making a lot of people uncomfortable. Among the concerns is that it's not clear how much oversight or accountability there is for what happens to the money coming in. And what about the risk of the White House pressuring a company in which it owns a stake like Intel not to lay off workers, or not to take a contract from a company because of the country it's located in? Some have even whispered that it runs counter to the very notion of what capitalism means.
So far, at least, the markets have taken a wait-and-see attitude. But if the White House moves to get involved in more private companies in the weeks and months ahead, market volatility could increase on worries that the United States is aggressively nationalizing private industry.
As I've outlined today, these are big questions the markets are contending with. Fed independence. Uncertainty over tariffs. A government shutdown. The future role of cryptocurrency in the economy. And the federal government taking an outsized role in the management of private companies. All of these issues are in a kind of limbo state, waiting for the courts to provide clarity, waiting for Congress to provide clarity. None will be resolved overnight. But all have potentially huge implications for the markets, the economy, and U.S. credibility around the globe. I'll be reporting on developments on these issues all fall and bringing in our experts at Schwab to help us all sort through the market reactions.
That's all for this week's episode of WashingtonWise. We'll be back with a new episode in two weeks, when we'll take a look at the Fed's expected rate cut, how the fixed income markets are reacting to the barrage of policy news and where investors can find opportunities in the bond market.
Take a minute now to follow the show in your listening app so you get an alert when that episode drops, and you don't miss any future episodes. And I'd really appreciate it if you would leave us a rating or a review—those really help new listeners discover the show.
For important disclosures, see the show notes or schwab.com/WashingtonWise, where you can also find a transcript.
I'm Mike Townsend, and this has been WashingtonWise, a podcast for investors. Wherever you are, stay safe, stay healthy, and keep investing wisely.
