By Megan Leonhardt | Wednesday, August 20

Messy. What was supposed to be a quiet week in the lead up to the Federal Reserve's annual Jackson Hole pilgrimage has been anything but calm.  

The Nasdaq Composite dropped 0.7% today, while the S&P 500 closed down 0.2% The Dow Jones Industrial Average made a late run for a record close, but ran out of steam, closing up about 16 points, or less than 0.1%.

Much of today's slide in the Nasdaq and S&P 500 was due to the fact that the so-called Magnificent Seven stocks struggled for a second consecutive day. Shifting U.S. industrial policy toward tech stocks likely isn't helping broader investor sentiment about artificial intelligence and tech. Commerce Secretary Howard Lutnick on Tuesday largely confirmed that the government is looking to take a 10% stake in Intel and other companies that received grants as part of President Joe Biden’s Chips and Science Act.

Federal Reserve Chair Jerome Powell’s expected speech from the base of the Grand Tetons on Friday may also be creating some market jitters, writes the trading desk team at Jefferies. In the past, the event has been a negative catalyst for the market.

The minutes from the latest Federal Open Market Committee meeting, which were out today, showed that Governors Michelle Bowman and Chris Waller, the two dovish dissenters, were outliers in their desire to cut interest rates in July.

To be sure, that meeting took place before the July employment data revealed weaker labor conditions, but it's worth noting that the hold 'em strategy had broad support—and there haven't been too many policymakers dramatically shifting that narrative in the weeks since. 

Maybe investors are having second thoughts about those likely cuts. 

"Markets are on a three-day losing streak as investors show fatigue following a 30% rally since April," writes Mark Hackett, chief market strategist at Nationwide. "We’re seeing a notable drop in leadership, with large-cap growth significantly lagging small caps and value this month. Still, the S&P 500 Index sits just 1% below record highs, and volatility and credit spreads remain calm, suggesting investors’ fears are modest."

DJIA: +0.04% to 44,938.31
S&P 500: -0.24% to 6,395.78
Nasdaq: -0.67% to 21,172.86

The Hot Stock: Analog Devices +6.3%
The Biggest Loser: Intel -7.0%

Best Sector: Energy +0.8%
Worst Sector: Consumer Discretionary -1.0%

Upstaging the Fed

Central bankers and research economist are set to descend on Jackson Hole, Wyo. tomorrow for the Kansas City Fed's annual Economic Policy Symposium, one of the seminal events of the economic calendar.

In the run-up to the event, the Trump administration is eclipsing the policy focus of the meeting. This morning, President Donald Trump called on Fed Governor Lisa Cook to resign, in the wake of accusations from the administration that she had committed mortgage fraud. 

It's the latest in a series of attacks pitting the administration against the Federal Reserve.

The response came late today: “I have no intention of being bullied to step down from my position because of some questions raised in a tweet,” Cook said in a statement. “I do intend to take any questions about my financial history seriously as a member of the Federal Reserve, and so I am gathering the accurate information to answer any legitimate questions and provide the facts.”

She said she first learned of the federal investigation from media coverage of social media posts.

Cook is currently serving a full 14-year term on the board that ends in January 2038. She was appointed in 2022 by then President Biden to fill an unexpired term. She was reappointed in 2023 to her current term.

Trump’s call to resign comes after Bill Pulte, the director of the Federal Housing Finance Agency, said he sent a criminal referral letter dated Aug. 15 to U.S. Attorney General Pam Bondi accusing Cook of mortgage fraud.

The criminal referral accuses Cook of misrepresenting two homes as primary residences “in order to potentially secure lower interest rates and more favorable loan terms” in 2021.

It’s true that identifying a home as a primary residence, as opposed to a secondary residence or investment property, tends to secure a lower interest rate from a lender, says Dave Fagundes, a law professor specializing in real estate at Emory University School of Law.

What is less clear from the allegations revealed so far is whether Cook actually engaged in such a misrepresentation and the context in which she answered questions in the mortgage application, he says. Under federal law, Cook could be liable to fines of up to $1 million and prison time of up to 30 years if found guilty. But Fagundes says it's very unlikely a judge would sentence her to anywhere near those maximums. 

Trump and his allies have been waging a multipronged offensive against the Fed in a bid to remake the independent agency responsible for setting interest-rate policy. It's ranged from coining the nickname "Too Late" Powell to more serious allegations. The administration also called out the Fed's costly renovation of its historic headquarters in Washington, D.C. That led to the images of Trump and Powell side-by-side in hard hats as they went back and forth about the ongoing construction in late July. 

Through it all, the president has been clear that he’d like to see lower borrowing costs, faster economic growth, and a far more compliant Fed chair. Stacking the Fed with loyalists has been seen as one way to get there. Already, Adriana Kugler resigned her term early—paving the way for Trump to nominate long-time ally and Fed critic Stephen Miran to fill the seat. 

Miran, if confirmed, is expected to hold the seat on a temporary basis. Trump is set to nominate a second candidate in the coming months who serve  a full 14-year term and would likely serve as the successor to Powell.

For the latest on the Fed, check out the coverage from me and my colleague Shaina Mishkin here.