Good morning. Andrew here. We dive deep into a story consuming Wall Street and Washington: accusations from President Trump that a Fed governor claimed two houses as primary residences years ago on mortgage applications. The claim comes as his administration pressures the central bank to lower interest rates. Lying on a mortgage application is a crime, but critics question if Trump is using “lawfare” to change policy — a practice he vowed to end. We go a lot deeper below. The big questions: How did this accusation emerge? Did someone connected to Trump decide to look into Fed board members’ private mortgage filings? If it came from a tip, from where? Does the origin matter if the governor committed an illegal or questionable act? Tell us what you think. (Was this newsletter forwarded to you? Sign up here.)
Lawfare at the FedPresident Trump keeps finding new ways to attack the Fed’s independence. His latest effort to go after a voting member of the central bank’s already divided rate-setting committee may be a legal long shot, but it could already be damaging a longtime cornerstone of U.S. fiscal policy. A recap: Trump yesterday took aim at Lisa Cook, demanding that the Biden-appointed Fed governor “resign, now!!!” He cited unconfirmed accusations by Bill Pulte, his firebrand director of the Federal Housing Finance Agency, that Cook had committed mortgage fraud by declaring to lenders in 2021 that two houses she owned were her primary residences. She listed one for rent in 2022, but didn’t declare any rental income on ethics filings at the time, according to an inquiry by the agency. (The Philadelphia Fed found thousands of potentially similar cases in a 2023 review. Prosecution of the matter is rare, but high-profile political figures have faced similar accusations.) Here’s more on Pulte, who has leveled attacks on Jay Powell, the Fed chair, as well as Democrats who have publicly opposed Trump. Trump has told aides he may fire Cook, The Wall Street Journal reports. Removing her could open the door for his administration to appoint another governor who would probably vote to drastically lower borrowing costs, despite wider concerns about Trump’s trade war pushing up inflation. The White House is already trying to get a key Trump adviser, Stephen Miran, confirmed as a temporary Fed governor in time for the bank’s rate-setting meeting next month. Some economists and market watchers worry the administration may try to go after other Fed governors to further stack the rate-setting committee with loyalists. Cook, who said she learned about the accusations via news media reports, said that the mortgage applications were made before she became a Fed governor and that she was gathering more information about the situation. She added that she had “no intention of being bullied to step down from my position because of some questions raised in a tweet.” The market reaction was swift. The dollar slumped and stocks initially sank. Trump’s efforts to exert more power over the Fed could shake global investors’ confidence in the institution, and in American financial assets, Skanda Amarnath, executive director of Employ America and a former Fed economist, told DealBook. “I think the optics of doing this in such a pugnacious and politically motivated manner, that’s going to spook” Powell and investors, Amarnath said. Some commentators have noted that though Cook was criticized by Republicans during her confirmation hearings as “hyperpartisan,” she has largely been seen as amenable to rate cuts. That said, she has consistently voted in line with Powell. The controversy may loom over the central banker confab in Jackson Hole, Wyo., that starts today. Investors had already been awaiting what Powell will say in a speech tomorrow about the economy and interest rates; will he address this, too? Amarnath thinks that’s unlikely, but he points to another possibility: If Powell really believed that Fed independence were at risk, he could choose to stay on the central bank as long as possible. His term as governor technically ends in 2028, two years after his chair term expires. “Let’s say someone else comes in who wants to really take a wrecking ball to the Fed,” Amarnath said. Powell “might want to be someone who stays on for that reason.”
Markets take another battering from investor A.I. fears. S&P 500 and Nasdaq futures are pointing south again this morning, after the indexes fell again yesterday because of sell-offs in tech stocks. Some traders have won big by betting against companies linked to artificial intelligence, as investors worry that businesses are spending too much for too little gain; relatedly, Meta has frozen hiring at its newly formed A.I. division after doling out millions to poach researchers from rivals, according to The Wall Street Journal. Law firms targeted by President Trump commit to doing free work for the Commerce Department. Paul Weiss and Kirkland & Ellis are among the firms involved in matters like trade negotiations, after striking deals to avoid punitive executive orders, The Times reports. While nine firms committed to pro bono work on causes that Trump backs, like helping veterans, the president has said that he thought they could work on other matters — including personally representing him. More associates of Mayor Eric Adams are poised to face corruption charges. Supporters and advisers of the New York mayor, including his closest political ally and several donors, are expected to face corruption charges in the coming days, The Times reports. The accusations are likely to add to the growing list of challenges Adams faces in re-election, as he squares off against Andrew Cuomo over who is better positioned to challenge Zohran Mamdani in the November mayoral election. Retail’s haves and have-notsLike companies in many industries, retailers have shown this earnings season that they are finding ways to weather President Trump’s trade war. But some big names are getting clobbered by investors while others are doing fine. Take Target. Even before Trump’s tariffs went into effect, the retailer was struggling with declining sales, boycotts and a wider public backlash over its diversity policy. Target’s shares fell 6.3 percent yesterday after it announced a management shake-up. There’s still “a lot of heightened uncertainty,” Jim Lee, Target’s C.F.O., told analysts. After delivering a gloomy full-year outlook, the company also said customers were stretching their budgets in the face of tariffs. And just in: Walmart raised its full-year profit and sales outlook, as second-quarter revenue topped Wall Street estimates. But the company said it was trying to keep prices low even as tariffs are seen raising costs; shares fell in premarket trading. Consumers are holding back elsewhere. For example, households are still deferring big home-improvement projects, Home Depot told analysts on Tuesday after reporting earnings that missed Wall Street expectations. (Shares rose on Tuesday, though, when the company maintained its full-year forecast.) Homeowners are grappling with high mortgage rates, and are worried about their jobs and the economy. “The consumer is cautious but still spending,” R.J. Hottovy, an analyst at Placer.ai, a data analytics firm, wrote yesterday in a report. Here are highlights from this week’s earnings calls:
The uncertainty has not killed dealmaking. Lowe’s announced an $8.8 billion deal yesterday to buy Foundation Building Materials, a distributor of interior building products, in a bet to attract more home-improvement professionals. The deal underscored that some bigger retailers are looking to expand into new markets and customer segments even as they face down tariff costs and uncertain consumer spending elsewhere. “We should build A.I. that only ever presents itself as an A.I.”— Mustafa Suleyman, the C.E.O. of Microsoft AI. In a personal essay, Suleyman writes about his concern over “seemingly conscious” artificial intelligence, which can show humanlike qualities of being linguistically fluent, empathetic and able to claim a sense of self. Such software could aggravate the problem of people becoming too emotionally attached to A.I., which Suleyman warns might lead to humans demanding rights and citizenship for these programs. Ackman’s bet on A.I. schoolingBill Ackman’s plate these days is pretty full with managing his $18 billion investment fund, backing what he hopes will be the next Berkshire Hathaway and using social media for his political advocacy. (And, occasionally, dabbling in sports.) But he is also making time for a new project: promoting a private school that incorporates artificial intelligence to teach children at a rapid clip and eschews divisive social issues including D.E.I. Ackman is now a de facto ambassador for Alpha School, whose days he says typically consist of two hours of dedicated A.I.-driven tutoring and four hours of other activities, sometimes guided by A.I. The organization is set to open its first Manhattan location, as it expands beyond California, Florida and Texas. The Wall Street Journal has more on how Ackman got involved: He is already enmeshed in the New York education scene and sits on the board of trustees of Horace Mann, one of the city’s most storied private schools. Ackman first learned about Alpha School at this year’s Berkshire Hathaway annual meeting after speaking to Sahil Bloom, author of “The Five Types of Wealth,” some of the people familiar with the matter said. Ackman found its structure, with the bulk of the day not instruction-based, to be innovative. He considered its stance on DEI and avoidance of concepts such as the gender continuum to be a bonus. He has since been hyping up Alpha School to parents in his social circle and took a small group to visit its Austin, Texas, location, some of the people said. After The Journal article was published, Ackman promoted Alpha School on social media, urging people to contact the school’s co-founder for more information. (The annual cost per student, according to The Journal, is typically $40,000 to $65,000, depending on location.) We hope you’ve enjoyed this newsletter, which is made possible through subscriber support. Subscribe to The New York Times.
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