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Austin Powers: Only two things scare me, and one is nuclear war.
Basil Exposition: What’s the other?
Austin Powers: Excuse me?
Basil Exposition: What’s the other thing that scares you?
Austin Powers: Carnies.
– Austin Powers: International Man of Mystery, New Line Cinema (1997)
This month, I learned what truly scares me, and it’s not carnies. I enjoy carnivals. What unsettles me is the growing politicization of the U.S. Federal Reserve (Fed).
Saying that the Fed’s independence is essential shouldn’t be controversial. One of its core responsibilities is to maintain price stability and anchor inflation expectations. If markets begin to perceive the Fed as an extension of the executive branch rather than an independent institution focused on its dual mandate, the consequences could be severe.
We don’t have to look far for a cautionary tale. In the 1970s, President Nixon’s pressure on Fed Chair Arthur Burns contributed to a period of elevated inflation and persistently high interest rates, conditions that weighed heavily on U.S. risk assets for years.1 I was born in that decade, but I have no desire to relive it. Besides, I’ve long since lost my polyester leisure suits!
Fortunately, President Trump denied reports that he plans to fire Fed Chair Jerome Powell. Here’s hoping that denial holds.
“Smashing, groovy, yay capitalism!”
It seems prices are starting to rise in categories affected by tariffs, such as major appliances, sporting goods, toys, and household linens, to name a few.2 We’re likely still in the early stages of these price increases.
Fortunately, the core Consumer Price Index (CPI) remains stable, as the pace of service price growth continues to slow.3 The rising prices of tariff-impacted goods, in our view, should be seen as a one-time price shock rather than the onset of a prolonged inflationary trend.
“I suggest a little bull market for stocks and a little bear market for bonds. Nothing dramatic either way for now.” – Bill Gross
Bill Gross, the “Bond King,” likes stocks. I concur. Our preferred indicators signal below-trend growth, favoring higher-quality stocks and bonds. It’s making me less inclined to call for a bear market in bonds, but Gross did purposefully use the word “little.” Either way, “nothing dramatic” might be music to many investors’ ears following a rowdy first half of the year.
Brian Levitt is a Global Market Strategist at Invesco.
Notes
1. Source: Bloomberg L.P., US Bureau of Labor Statistics. The year-over-year percent change in the US Consumer Price Index troughed at 2.7% in June 1972 and ended the decade at 13.3%. The 10-year US Treasury rate peaked at 11.02% in October 1979. The S&P 500 Index return was -0.19% per year from 1973 to 1977.
2. Source: US Bureau of Labor Statistics, June 30, 2025, as represented by select industries in the US Consumer Price Index.
3. Source: US Bureau of Labor Statistics, June 30, 2025, based on the year-over-year percent change in the US Consumer Price Index.
Disclaimer
Contents copyright © 2025 by Invesco Canada. Reprinted with permission.
This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions.
The opinions referenced above are those of the author as of July 18, 2025. These comments should not be construed as recommendations, but as an illustration of broader themes. This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions.
Forward-looking statements are not guarantees of future results. They involve risks, uncertainties, and assumptions; there can be no assurance that actual results will not differ materially from expectations. Diversification does not guarantee a profit or eliminate the risk of loss. All investing involves risk, including the risk of loss.
Diversification does not guarantee a profit or eliminate the risk of loss.
All figures are in U.S. dollars.
This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions.
All investing involves risk, including the risk of loss.
Past performance is not a guarantee of future results.
In general, stock values fluctuate, sometimes widely, in response to activities specific to the company as well as general market, economic and political conditions.
Commissions, trailing commissions, management fees and expenses may all be associated with mutual fund investments. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Please read the simplified prospectus before investing. Copies are available from your advisor or from Invesco Canada Ltd.
Investment funds are not guaranteed and are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. There can be no assurances that any fund or security will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the fund will be returned to you. Fund values change frequently and past performance may not be repeated. No guarantee of performance is made or implied. The foregoing is for general information purposes only. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice.
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