The Watchdog — Home and Abroad
January 15, 2026
Scott B. MacDonald, Ph.D.
Summary: Geopolitics, policy uncertainty and market volatility rule for now, which will be balanced by what is expected to be another strong earnings season and continued signs of economic expansion. Four things dominate the economic landscape and markets in the short term: the Q4 2025 earnings season; the Trump administration’s criminal investigation of the Fed’s chairman, Jerome Powell; Trump’s initiative to cap rates on credit cards at 10% for a year; and a bubbling cauldron of geopolitical developments, probably the most important of which currently is Iran. The K-shaped economy remains a major factor, leaving the Democrats to focus on the affordability issue, while the Trump administration denies that it is an issue, but is working hard to meet public concerns over the cost of living. Other issues to watch include the Supreme Court decision over the Trump tariffs, clashes over deportation policy and the large-scale financial defrauding of federal money in Minneapolis. As Racer X, the character in a children’s cartoon Speed Racer said: “Anything can happen.”
At Home - Headlines
Complicating matters at the Fed. The Fed’s chairman, Jerome Powell is set to step down from that position in May, and the Trump administration will appoint a new chairman, who is expected to be a loyalist acceding to the President’s demands for lower interest rates. That timetable may now be set back as the Department of Justice has asked a federal grand jury to subpoena the Fed chairman over the $2.5 billion renovation of the central bank’s headquarters. This is a serious escalation in a fight between the Fed and the White House that has seen Trump call Powell “an idiot” and a “stubborn mule”, while also seeking to sack Governor Lisa Cook over allegations of mortgage fraud (which she denies). The basis of the legal action is that the Fed’s renovation is $700 million over budget and that Powell misled Congress while testifying. The action also points to an underlying theme from the Trump administration that corruption in Washington is far-reaching and that no one is above the law.
The reaction to the Trump administration’s criminal investigation into the Fed chairman was overwhelmingly negative, with plenty of comparisons to banana republics, not to mention the impact on the US dollar and global financial security. Former Fed chairmen supported Powell as did foreign heads of central banks. Probably riskier is that Senator Thom Tillis (R-N.C.) said that he will block any Trump Fed nominees, including the chair, due to the Justice Department’s investigation into Powell for perjury. Tillis stated, “If there were any remaining doubt whether advisers within the Trump administration are actively pushing to end the independence of the Federal Reserve, there should now be none. It is now the independence and credibility of the Department of Justice that are in question.” What makes Tillis’s position important is that he sits on the banking committee, which has 13 Republicans and 11 Democrats. Even one defection (and there might be others) could result in a stalemate on any new Fed appointments.
What does Smith’s think? The timing is surprising. Powell’s term ends in May and Treasury Secretary Scott Bessent had worked hard to make the succession process smooth. Indeed, it could be said that without having to fire Powell, Trump was already getting the policies that he wanted (cuts in interest rates) and would soon have a new ally running the central bank. Now a smooth change of leadership is questionable. Although the Trump administration is marching ahead with the investigation, having a possible crisis at the Fed does not make for good politics in an election year.
Credit cards and affordability. President Trump’s call for credit card companies to cap rates at 10% for one year is putting the industry under pressure as well as having a public appeal related to affordability issues. Credit card companies are supposed to comply by January 20th, or they’ll be “in violation of the law.” Currently there are no details about how a rate cut would be implemented or enforced without Congressional legislation.
The average credit card interest rate for accounts with assessed interest (credit cardholders who carry a balance) is 22.30%. According to Bankrate, 47% of credit cardholders report having a credit card balance and 22% of debtors do not think they will ever pay it off. Why are rates so high? Credit card companies charge high rates because they can and it is profitable. Moreover, as long as most credit card holders pay their bills (as much as they can) it covers the cost for those holders that fail to make payments.
What does Smith’s think? A cap on credit card rates would be relief for many holders, many of them in the lower income bracket. It also looks good for Republican campaigning for the midterms. We expect the financial sector to push back due to the impact on the $70 billion market that bundles the debt into bonds. Moreover, banks and credit card companies could limit the amount of credit available, something that would hit the same lower-income earners that such a cap is trying to help. January 20th is not far away and going through Congress rarely works in a rapid fashion. This could be a test of Trump’s ability to “persuade” Wall Street to do what he wants. As Steve Gannon, a financial-services lawyer at Davis Wright Tremaine stated, “It’s a messy intersection of politics and banking policy.”
Earnings ahoy! One of the main planks for US economic growth is corporate earnings. This earnings season started with JP Morgan, Bank of America, Citigroup and Wells Fargo. While there were no bad results, investors regarded the outcomes as mildly disappointing and are concerned about the impact of a credit card rate cap. Markets did not respond well, with bank and tech shares falling amid talk of a possible earnings malaise. That said, expectations remain high that Q4’s earnings will reflect strong economic growth and consumer demand and hit double digits again. Some estimates put earnings Q4 at 8.0%, but that is too low considering the ongoing strength of the economy and upper-income consumers.
What does Smith’s think? As long as corporate America continues to chug along at a reasonable clip, it feeds into a positive narrative about the economy. There remains considerable investment flowing into the AI sector, which should continue to pump up earnings. Another plus for corporate earnings is the fiscal stimulus and deregulation embodied in the One Big Beautiful Bill Act. Before anyone opens a bottle of champagne there are possible factors that could diminish the earnings outlook – a major geopolitical shock that unexpectedly jacks up energy prices; concerns over a Fed crisis that impacts monetary policy and pushes companies to opt for safety and freeze hiring; and the stock market shows itself to be a bubble and bursts. We expect that these risks will not play out, but they sit on the economic horizon.
Headlines Abroad – Quick and Dirty
Iran – The theocratic regime headed by Ayatollah Ali Khamenei is brutally suppressing the country’s rebellion, with deaths reported at over 2,000. The Trump administration has added pressure by threatening to take some type of action against the theocratic state. Khamenei and his cohorts may cling to power, but they cannot address the issues that brought the country to where it is today – economic mismanagement, pervasive corruption, economic isolation, and drought. Downside risk from this situation is that the regime lashes out against US targets in the region and hopes to salvage some sense of nationalism.
Greenland – Trump wants Greenland and intends to get it regardless of the consequences. The motivation is US national security, growing challenges from China and Russia in the region, the treasure trove of minerals and oil on the island and its surrounding waters, and Denmark’s meager military capacity in the region. Meetings are being held to find a solution to the issue. Regardless of outcomes from the talks we see a much larger US military and investor presence in Greenland. Little consequence is given to the views of Greenlanders and the future of NATO, which we think Trump would be happy to ditch.
Venezuela – Maduro is gone, but the Chavista state remains. President Delcy Rodríguez is the head of state, but she must contend with Diosdado Cabello who runs the country’s security apparatus. As The Guardian noted of this charmer, he “is perhaps the most feared, reviled and, in some quarters, revered government figure”. Allegedly he has been warned that unless he cooperates with the Trump administration, he could end up as Maduro’s neighbor. While the Trump administration claims it will be running Venezuela and has leverage with how much oil the South American state can export, the political situation remains tenuous, the national and energy infrastructure rundown, and some of the major oil companies are skeptical of investing in the country. Indeed, ExxonMobil’s Chief Executive Darren Woods told Trump, Venezuela is currently “uninvestable”, a view shared by many in the energy business. While ExxonMobil has substantial operations up and running in Guyana and in up-and-coming Suriname, other more risk tolerant companies may take up the challenge.
