What mattered this week: The Federal Reserve survives Trump

Plus, Congress could force ICE to demask and Trump's warmongering hits consumer confidence

THE TOP 5:

The Fed stays normal. President Trump tapped Kevin Warsh to be the next chair of the Federal Reserve, which is about as good an outcome as investors could have hoped for. Warsh is a former Wall Street banker who was a Fed governor from 2006 to 2011. He contributed to monetary policymaking decisions during the Great Recession and is considered more or less mainstream. Trump went with a conventional pick instead of a kook, which means the Senate will probably confirm him easily and the Fed will likely remain an independent body that doesn’t do everything the president demands.

Warsh was “hawkish” when he was at the Fed, meaning he favored higher interest rates to keep inflation forever vanquished. He has recently become more “dovish,” arguing in speeches and Wall Street Journal commentaries that the Fed is too involved in markets and doesn’t need to worry so much about inflation. Not everybody loves him. Liberal economist Paul Krugman called Warsh a “political animal” who sucked up to Trump to get the job and “lacks the intellectual and moral credibility to be effective.” Okay, but once Warsh replaces outgoing Fed chair Jerome Powell, he’ll serve a four-year term that will end in 2030, after Trump’s gone. He won’t have to bow to Trump.

Betting markets Kalshi and Polymarket put the odds of Warsh getting the job in the 90% range the day before Trump announced him. They got it right. Once Warsh takes the job, they should make book on how many days it will take Trump to criticize the new Fed boss. My guess is 34 days. That’s the amount of time from May 15, when Powell’s term ends, to the end of the Fed’s June policymaking meeting, when Trump will probably find something to be unhappy about.

Oh, the Fed declined to lower interest rates at its January meeting, as I predicted last week, and markets expected.

Stocks were flat this week and the price of gold ended about where it began, after briefly orbiting to a record high of $5,586 per ounce on January 29. Gold ended the week at around $4,861. Stocks fell modestly the day Trump announced Warsh’s appointment, but there’s probably no connection.

Small-cap stocks in the Russell 2000 index are still outperforming the big boys in 2026.

Mini shutdown. About 78% of the federal government will shut down for a few days because Congress didn’t pass funding bills by the January 30 deadline. They would have, except for the ongoing mayhem caused by immigration agents in Minnesota. After two unidentified agents shot and killed protester Alex Pretti on January 24, Democrats said they would block funding for the Dept. of Homeland Security until there were new reforms requiring immigration agents to operate more like a civilized police force and less like a Gestapo. That derailed the funding votes. The plan now is to pass most of the funding bills early the week of February 2, reopening the government through September 30, when the fiscal year ends. Congress will handle funding for DHS separately. DHS has plenty of funding and will continue to operate during the mini shutdown.

[More: You’re only better off under Trump if you own stocks]

ICE rules? Democrats want new rules that would govern the behavior of agents belonging to US Immigration and Customs Enforcement and other agencies that deal with immigration. They include:

• A ban on roving patrols meant to sweep up undocumented migrants

• A ban on entering people’s homes except with a warrant signed by a judge

• A uniform code of conduct, as in real police organizations

• Independent investigations of complaints and alleged abuses handled outside the agency

• A ban on masks

• Required use of body cameras

• More focus on migrants with criminal records and less on migrants who are just migrants

Democrats have little power in Congress and Republicans normally laugh off their demands. But not this time. Eight Republicans voted with all 47 Democrats in the Senate to stop the funding process in order to apply more scrutiny to DHS. Two Republicans called for DHS Secretary Kristi Noem to resign.

This doesn’t mean Democrats will get what they want. It does mean a lot of Republicans are bothered by federal agents killing nonviolent protesters and are probably pressuring Trump privately to find an off-ramp.

[More: Why Trump let up on Greenland while rampaging through Minnesota]

Bumming. Consumer confidence plunged to the lowest level since 2014, according to the Conference Board’s monthly survey. Trump’s warmongering may have something to do with it, given that in the last month, Trump has seized Venezuelan President Nicolás Maduro, threatened a military operation against Greenland and told Iran he’s coming for them, too. Trump backed off the Greenland threat, and he may be bluffing on Iran, as well. Americans feel the stress all the same.

They’re not loving the economy, either. Respondents think inflation will soar to 5.7% within one year, largely because of Trump’s tariffs. Healthcare costs are a growing burden. They also see the job market weakening.

Meanwhile, Apple reported “staggering” demand for its premium iPhone. American Airlines said its strongest bookings were in first, business and enhanced economy class. And Royal Caribbean said 2026 “is off to a very strong start.” There’s your K-shaped economy.

Oil slump. Exxon Mobil and Chevron reported the slimmest annual profits since 2021. Don’t worry, they’re fine. But oil profits always decline when oil prices drop, and this is a timely reminder that President Trump is not going to get everything he wants from his friends in Big Oil.

Trump wants American firms to produce so much oil that gasoline prices, now around $2.90 per gallon, fall below $2. But that would mean even lower oil prices and even thinner profits. US oil production is now at a record high of nearly 13.9 million barrels per day, and forecasts call for that to dip slightly in 2026, not go up. Even so, that would probably leave oil and gas prices around where they are now.

On earnings calls this week, CEOs of both Exxon and Chevron said they’re not yet planning any new investment in Venezuela, where Trump wants American firms to modernize the decrepit oil infrastructure. They could still get involved if Trump manages reforms in Venezuela that improve security, legal accountability and the overall business climate. But that will take the kind of dogged follow-through Trump seems to lack the patience for. Trump may not see the quick gusher of oil in Venezuela that he’s hoping for.

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WHAT WILL MATTER NEXT WEEK:

Target: Iran. Trump has sent an aircraft carrier and other warships to the Persian Gulf region as he threatens military action against Iran. A month ago, Trump said he’d attack Iran if it harmed protesters—which Iran did, reportedly killing thousands. Now he says he wants Iran to renounce nuclear weapons. He may also be hoping military pressure could oust the Islamist regime that has run the country since 1979. But this has all the hallmarks of a Trump “crisis” that will ultimately end with some kind of “deal” that doesn’t amount to much.

[More: Trump is not going to attack Iran]

Tired of Epstein yet? The last batch of Epstein files has arrived, according to the Justice Dept. Reporters and other sleuths will now slog through some three million documents to see what’s left to say about the dead sex abuser and his connections to Trump. I’ve said all along that there’s no way the Trump Justice Dept. will release anything that incriminates Trump, who was clearly very friendly with Epstein for years. Speculation and conspiracy theorizing will continue indefinitely.

Jobs update. The next batch of job numbers arrive February 6. Economists expect about 70,000 new jobs, which would be fine. Job growth has slowed notably from a year ago, however, and a net loss of jobs is possible.