KATHY JONES: I'm Kathy Jones.

LIZ ANN SONDERS: And I'm Liz Ann Sonders.

KATHY: And this is On Investing, an original podcast from Charles Schwab. Each week we analyze what's happening in the markets and discuss how it might affect your investments.

Well, hi, Liz Ann. We took off last week from the podcast for Juneteenth, but now we're back and it's busy as usual. A lot of uncertainty around trade policy, still. We have that extended uncertainty into the conflict in the Middle East. Seems like markets so far are dealing with it pretty well, sort of taking it in stride.

LIZ ANN: It is remarkable because, of course, the United States bombing some of the installations in Iran occurred on the weekend. And it was well in advance of when futures opened on Sunday evening. But as anybody watching markets know, you did see a quick spike in oil prices. You had the futures down on that Sunday night, a lot, but it obviously didn't last long. And I think it's a function of the reversal that we saw, the quick reversal in oil prices, and that was based on odds, however one calculates those, that the Strait of Hormuz would not shut down. That's where close to 30% of all maritime oil goes through there. 

So I guess we can call it some sort of de-escalation in terms of any potential retaliatory efforts on the part of Iran that could really disrupt oil supplies. That had been the number one fear, and that filters through to inflation and economic growth. And you saw that reversal in oil prices, and that provided that lift for the equity market. But you know, momentum has been in favor of the bulls for some time. And I still think that part of the story is what's often called the "pain trade"—it has to do with how various cohorts of investors are positioned and whether that could lead to further upside. And I think the "pain trade" to some degree may still be a bit higher here. And we've talked about on episodes in the recent past that it's been an interesting move off the early April lows in the equity market, given that it's got retail traders' fingerprints all over it based on the types of stocks that have done particularly well, and groups of stocks that have done well, baskets like Goldman Sachs's retail favorites and the meme stocks. And part of what's interesting about what's done well is, in the slightly later part of that move off the early April lows, you had some of the most heavily shorted stocks do well, and that's suggestive of short covering on the part of institutions. So it almost seems as if the retail trader buy-the-dip mentality worked to their benefit, and the market's done well, and it actually pulled institutions along with it. And the reason why I say the "pain trade" is still higher, at least near term, is that we did see a lot of short covering, but all the positioning data of institutions that I look at still suggests they maybe just moved to more of a neutral position. They haven't gone fully risk on.

So that could mean momentum still favors the bullish side of the ledger. We've seen also the sentiment backdrop is one that tends to be fairly favorable to the market where you reverse off pretty depressed sentiment and you kind of go back into neutral territory. That tends to be a backdrop of pretty decent market returns. In turn, I'm very mindful of what we could be heading toward, which is a bit too much complacency.

You know, "nothing to see here," as it relates either to what's going on in the Middle East or because that kind of pushed the trade war and tariffs off the front page: "nothing to see here." But of course, we've got that very important July 9th date kind of, you know, bearing down on us, which is the delay of the reciprocal tariffs that were announced on April 2nd. That's when that concludes, and we don't know of course what's going to happen between now and then, but I think some complacency as a risk, as something to be mindful of. And in your world, I think another reason why the equity market's done well is there's at least some calm in the bond market. We haven't seen some of these big shifts in the 10-year yield. So what is your thinking on this? Do you think this is lasting calm, or are you braced for more volatility?

KATHY: Well, I think I'm braced for more volatility. It has been a calm between the storms, maybe you could call it. But we are waiting also on the reciprocal tariffs. We're waiting on the final conclusion of the Big Beautiful Bill and what that means for fiscal policy going forward. The debt ceiling is coming up. And then, of course, a lot of speculation about what the Fed may or may not be doing.

We've had clearly a greater divide now at the Fed as to what the timing of the next policy step. I don't think there's a lot of people at the Fed who are looking at raising rates, but clearly there's a lot who think that we should be on hold through the end of the year. And then we have some very outspoken people, Christopher Waller and Michelle Bowman, who are now coming out and saying, "Hey, maybe we should cut as early as July."

So it looks like we're getting a wider dispersion of opinion at the Fed. And I, you know, I still think the … you know, we came into the year with "OK, probably two rate cuts towards the end of the year, September and maybe December." And obviously, that's still questionable. But on the other hand, I kind of think it's not a bad expectation. Officially, we still have a median estimate of two rate cuts this year.

I think if one comes sooner rather than later, it's probably September, once the Fed has enough data to see what's going on with some of the impact of the tariffs, the immigration, the deportations, we're seeing that softness in the labor market, which may motivate them to cut by the fall. But I think it's still going to take a little time for them to get their arms around what the impact is of all of these big policy changes that we're experiencing. So, you know, we'll see. But right now, I think the market's kind of caught and trying to figure out, you know, how to react to what's going on. So it's kind of just bobbling around, biding its time. But I don't expect the calm to last all that long.

LIZ ANN: Yeah, and I think volatility in the bond market will, to me, undoubtedly potentially have an impact on the equity market. There's been such a connected feeder between those two. So I'd be on guard for that as well, especially if more complacency kicks in of the "nothing to see here" variety.

KATHY: Yeah, absolutely. 

So Liz Ann, this week we're very lucky to have our colleague and good friend Mike Townsend on to talk of politics and policy. He is an expert in the Washington arena where so much is happening and affecting the markets.

Mike is Schwab's Washington-based political analyst with more than 30 years of Washington experience. He analyzes legislative, regulatory, and political developments to determine how they would affect individual investors, retirement plan participants, and investment advisors. He's also the host of the WashingtonWise podcast.

If you haven't given it a listen yet, you can search for it in your podcast app or go to schwab.com/WashingtonWise. And like us, he posts regularly on X and LinkedIn. You can follow him @MikeTownsendCS on X and Mike-Townsend on LinkedIn. And we'll have a link to his social media accounts in the show notes.

KATHY: Well, Mike, it's great to have you back. It seems like there's no end to the news coming out of Washington, D.C., these days. So very timely to have you back with us again. What I wanted to start with is the most recent news about the ongoing conflict in the Middle East. Upfront, we don't know where this is going. There seems to be something new every day. But from a policy perspective this seems to be a departure for the president from his, kind of, campaign promise to avoid foreign wars, to not get involved in foreign disputes. And are we clear on the motivation for the U.S. getting … you know, putting itself into the Iran-Israel conflict and attacking the Iranian nuclear facilities and forgoing more negotiations?

MIKE: Yeah, Kathy, I think what we have is sort of tension between two strongly held positions. One is that this president, like previous presidents, believes that Iran cannot be allowed to develop or have a nuclear weapon, period. And the other is that this president, like previous presidents, doesn't want to be drawn into an extended conflict in the Middle East, and with Iran in particular. So I think there's just an inherent tension there. And you're certainly seeing some pushback, obviously, from the right and the left, about these military strikes and our involvement. And I think that stems from the worry of getting dragged into an escalating conflict that takes more and more time. If this is a get-in-get-out, we're done, you know, I think then people will move on pretty quickly. But history says that that's not how things in the Middle East work. And so I think that's where the big concern is.

KATHY: Yeah, also I've heard some rumblings about, "Well, Congress wasn't consulted or at least not involved in the decision." Is that a problem, or is that kind of routine these days?

MIKE: Well, it's becoming more routine, I think, as the definition of what constitutes an act of war is a very fungible sort of definition. I think the administration is sort of playing this as a very targeted, specific thing that they were doing with no intention of getting involved further. Whether that will come to pass, I think, is an open question, of course.

Certainly, there's some pushback on the Hill, quite a lot of pushback from Democrats who feel that the Constitution is pretty clear in saying that only Congress can declare an act of war and that they should have been consulted, and even some Republicans who feel that way. So I think there is going to be resolutions considered in both the House and the Senate that would require, or at least try to require, the president to consult Congress in advance of any further action. Whether those pass, I think, is more of a long shot. But I think it's clear that there is pretty strong feeling on Capitol Hill about the sort of go-it-alone decision that was made here.

KATHY: Yeah, of course. One doesn't know where Congress would come out if they were forced to have a vote on this, right? I mean, they could have gone along with it.

MIKE: Well, that's right. I think there's also this whole tension between, do you spend two weeks telling Congress, "Hey, we're going to strike Iran, and we're going to debate about it and have a vote." And meanwhile, you've told the rest of the world now what you're doing. And so I think the administration wanted the ability to surprise the Iranians. And it seems like they were fairly successful in doing that. Obviously, that probably couldn't happen.

There are just so many sort of tensions here that aren't really resolvable, and there'll be a lot of complaining on Capitol Hill, but at the end of the day, it's done, and we'll see if it escalates from here.

KATHY: Well, one of the interesting things to me is the market reaction has been relatively muted so far. I mean, initially, you know, stocks declined, and now they've got to bounce back. Treasury yields, you know, they're lower, and the dollar is higher, but it's hardly the kind of big, big move you might expect when we have one of these macro events that heightens dangers around the world. So there's a little bit of safe haven move here, but I wouldn't say that this is a big reaction. I have a few ideas on why that might be the case. But I wonder if you have some thoughts on that topic.

MIKE: I think it's a bit of a surprise. It's possible that because it took place on a weekend, and there was a little bit of time for the markets to sort of adjust, I think that was possibly a factor. I think the sense that this is a fairly, hopefully, isolated situation. But we just have no idea how this is going to unfold. And there are so many potential implications if Iran tries to slow the movement of ships through the Straits of Hormuz or something like that that could have a much bigger impact over a much larger time on oil prices and that sort of thing. So you know, I do think the market still has a role to play if things escalate, but the market seems to be taking kind of a wait-and-see how things play out attitude. But I'm curious, you know, what you think about the market reaction also.

KATHY: Well, you know, my initial thought was, you know, it's not really … it's … it's bad news because no one wants to see heightened conflict in the Middle East of all places. But then I thought, you know, in my lifetime, there's never been peace in the Middle East that I can remember. And so perhaps the market is just inured to this at this stage of the game, unless it interferes with the flow of oil, you know, through the Straits of Hormuz or whether it interferes with companies' ability to do business, etc. And the market doesn't have a moral compass, right? The market is about who makes money, how, and where, and when. And I think that, yeah, there's a degree of cynicism, perhaps, in the way people invest. And some people look at these sort of things as an opportunity: "Well, maybe defense stocks will rally. Maybe the dollar will rebound." 

And I think that that's kind of what we have seen, where markets are just reacting to watching where the money goes. But one of the things that did make me curious, do you think a muted reaction from the markets would encourage the administration to go further? In other words, and the converse, well, what if the markets really had a negative, negative reaction? Do you think that would cause the administration to change its approach?

MIKE: Yeah, I do think a big negative reaction would probably give the administration some pause. Certainly the most recent example of that was the tariff situation in April where, I think, we saw particularly the bond market reaction to the imposition of the reciprocal tariffs in early April really caused the administration to pull back pretty suddenly. So there's been this kind of ongoing discussion here in Washington and I'm sure on Wall Street also about how much the president, who historically has seen the market as a really important barometer of his own success, whether that's changing, that he is maybe sort of less worried about what the market is doing. But I certainly think, if we had a major market reaction in the negative sense, that that would probably influence policy going forward.

KATHY: I'm glad you brought up tariffs because that's where I wanted to go next. We still have tariffs. I think the average tariff rate right now is about 15%, but there's so many moving parts. We're still in summer pause. Some have been lowered. Some are higher. Where do we stand on tariffs now? Where are the negotiations? What are we looking at?

MIKE: Yeah, I mean, you go all the way back to February. We have the original first round of tariffs that were put on imports from Canada and Mexico. And those have been sort of partially paused and then reimposed. And so like a lot of these, remembering what's on and what's off is actually sort of challenging. We have the 30% tariff on imports from China. Of course, that's down from the period when it was as high as 145%.

We have 50% tariffs on steel and aluminum imports. We have 25% tariffs on imported cars and car parts. To me, the one that gets sort of lost in all this is the 10% across the board tariffs on all imports, which have been in place now for a couple of months. And I think people sort of forget about that, but that alone makes for the highest average tariff rate this country has had in basically a century.

I think that got a little bit lost in the reciprocal tariffs. The reciprocal tariffs were those charts that the president put out in early April with a different rate on about 90 different countries, depending on the size of their trade deficit. And those were implemented for a few hours and then paused for 90 days. And to me, that's the next big thing to watch. That 90-day expiration date is July 9th. And I think that's a really important date coming up because we don't know what the White House is going to do. Are they going to extend that period for another 60 or 90 days? 

Are they going to start imposing tariffs on countries that they don't feel like negotiations are going well with? They have been having supposedly negotiations with all these countries, but they promised 90 trade deals in 90 days, and I think we have one at this point. I think that July 9th date is going to be a really, really important date to watch because companies don't know what the tariffs are going to be going forward from there. And I think that makes it really, really hard to plan and make decisions.

KATHY: Well, I have to believe the administration is hearing a lot from business leaders about tariffs, among other issues, but particularly among tariffs and the impact that it's having on their businesses. When I read the Fed minutes from the various districts, I mean, the word "tariff" just comes up over and over and over again when business leaders are interviewed about their outlook. And even among consumers worried about inflation, the tariff word comes up a lot. So I have to believe that there's a lot of lobbying going on. At what point do you think the administration responds to this by rolling back some or saying, "Well, we have a deal," when we don't really have a deal or status quo? I mean, at what point does this become important to the administration that the response has been largely negative from businesses?

MIKE: Yeah, I think it becomes important when companies start raising prices, when the market starts to really react. Because remember, there's a big lag here between tariffs being imposed and it actually sort of playing out in the marketplace. I think, first of all, you saw a lot of companies sort of front load orders in the pre-tariff period, knowing that those were coming. Those probably bought you a few months.

So I think we're probably looking at late summer, early fall before you really start to feel whether there's going to be a significant impact in prices. And we've seen companies sort of threaten to raise prices, but maybe not act yet. But at some point, the math just is going to work in such a way that they're going to have to raise prices. And they're going to have to risk whatever blowback they may get from the administration about doing so.

But just from a pure business economic sense, they're going to have to make this work. I think that's the period at which you are going to start to really see a market reaction and potentially a reaction from the White House. I think there are a lot of conversations that are going on now to try to stave off that result, to say, "We can go another month or so like this, but we're going to have to start raising prices if we don't get some relief."

It'll be interesting to see as we go through the summer whether you start to see some relief offered in the tariff space from the White House. And as I said, that July 9th date is really important because if that's extended for, say, there's another 90-day pause, well, that'll help companies to continue to know what the landscape is going to be, at least for a little while going forward.

KATHY: Well, that in a similar sense, something else we are hearing from businesses about is immigration. And I know that the president recently said he would ease up on some of the deportations and restrictions on immigrant workers in agriculture and hospitality, citing calls from business leaders in those industries saying, "Look, we're just having a really tough time finding people and these are good people working hard and they shouldn't be deported."

So is that a pattern that we're likely to see now by various industries? Are they going to just come in and say, "Look, we can't deal with these restrictions, with these deportations?" I mean, how influential are these calls? Because this is a pillar of the administration's policy. And what does it tell us about the future, if anything?

MIKE: Yeah, I think you are going to see an increase in these types of calls from companies and sectors because you're starting to see not only the so-called raids, but it's the threat of a raid or the worry that they could go to their job and there's an agent there waiting for them. And that's starting to play out, of course, in people not showing up for work.

And that's where companies, I think, are starting to get really, really concerned, particularly in places like restaurants and hotels, places like agriculture. And I think it was literally the agriculture secretary who went to the president and said, my sector is begging me to stop some of these raids at places where a lot of workers are picking fruit or whatever it is.

And so I do think that is influential and will probably continue to be influential. I think what companies are generally objecting to is the sort of haphazard way all of this is unfolding, where raids are capturing people who have all their papers in order, who haven't been accused of any crimes, who are good, hard workers, who are raising a family, and you know, they're losing good workers as a result. 

So I think the administration is going to be really pressed more to try to thread the needle better on this, to really emphasize, you know, they keep saying that we want to emphasize deportation of illegal immigrants with records, criminal records, but so many stories, of course, of people getting caught up in this, and that's where, again, all of this sort of feeds into this kind of uncertainty that companies have. It's on tariffs. It's on immigration. It's on taxes right now, to know how to plan more than a couple months in advance.

KATHY: Yeah, I think so far because the economy has been fairly sturdy—it's been resilient and holding up—there hasn't been maybe as much concern in the administration, but it's when you look forward that you say, "Oh, you know, it's really tough to plan." If you don't know where your workers are coming from, how much they will cost, if you're going to find the workers, is there a plan B for replacing them, let alone then your cost, input cost for various materials to produce your goods, or will there be retaliation by other countries with tariffs of their own on the things that I'm trying to export? 

So many questions at once, you're right. It's very difficult for companies to plan. I wanted to ask you, you mentioned the tax issue. We're working on the "One Big Beautiful Bill" as we speak. It's in the Senate's hands, right? Where does it stand, and what are the key tax provisions that investors should be aware of?

MIKE: Yeah, you know, I think as everyone's aware, the House passed the bill by a single vote back in May, and now the Senate is working on it. And the Senate is changing what the House passed. And that's potentially a problem as we go forward. But in terms of what's in it and what's consistent in the House and the Senate version, you know, it makes permanent the lower individual income tax rates that were set back in 2017. Those are the ones that are set to expire at the end of this year. I think that's a really important catalyst for the bill.

The legislation also makes permanent the estate tax, and that's a really important one from a planning standpoint, because it sets the exemption amount, the amount of assets that someone can inherit without triggering the estate tax at $15 million beginning in 2026, and then indexes it to inflation in future years. So it provides some certainty in an area where there has been some sort of back and forth over the last decade or so over what the estate tax is going to be.

From an investor standpoint, I think that's an important one. And then it has these campaign promises that the president made during the campaign last year. No tax on tip income, no tax on overtime hours, also making the interest on auto loans tax deductible. Those are three core things that the president promised. And the House and Senate take a little bit different approach as to sort of who's eligible and for how long and that sort of thing. But the bill does meet those promises.

One other promise that the president made was no tax on Social Security benefits, but you can't actually do that in the context of the rules surrounding this bill. You can't do changes to Social Security. So what they've done instead is create a deduction for seniors, 65 and up, just a straight $4,000 in the House bill. The Senate actually raises it to $6,000, so we'll see which one comes out in the end, but just a straight up tax deduction for seniors designed to kind of offset that. 

And then another one that we've been watching pretty closely here is the House bill had a remittance tax in it that would essentially put a tax on any remittances back to foreign countries. But the House wrote it in a way that was very, very overbroad and general. And it seemed to capture kind of ordinary investment transactions for overseas investors, someone who is outside the United States but had a U.S. brokerage account, for example. The Senate version actually fixes that, which is a positive development. So it makes clear that it doesn't apply to sort of traditional bank accounts or brokerage accounts that are in the U.S. and sending money to, you know, if there's a foreigner overseas.

So those are exempted. It's really just sort of those remittance payments back to a country, typically by illegal immigrants. So that's a plus in the Senate bill to have that clarified because that was something that was very concerning. So there's a lot of tax revisions still sort of moving around. Of course, the bill also has huge cuts to Medicaid and to other programs that are concerning. So a lot of moving parts to this still as the Senate works its way through it.

KATHY: Is the bill going to get done this summer? think they were talking about Fourth of July as a deadline. Does that look likely?

MIKE: So I think the idea that the president is going to sign it by the Fourth of July is looking harder and harder to make that happen. I think the goal of the Senate passing it by the Fourth of July is very much still on the table. That's their priority to try to get that done. Because they have made so many changes to the bill it has to go back to the House of Representatives for a final vote.

Both House and Senate have to pass the exact same bill at the end of the day before it can go to the president. So I think it's increasingly likely that that House vote won't happen until after July 4th, maybe the middle of July. But they're moving pretty quickly here. And you know, I really think that failure is not an option for the Republicans. I mean, this can't collapse. I mean, this is really the heart of the president's domestic agenda. And while there are a lot of objections even from Republicans to specific parts of it, I think most of those get worked out, and I think, at the end of the day, this bill does get done probably sometime in July.

KATHY: OK, well, we'll look forward to that. But the other issue, of course, for the markets is that the bill is going to increase budget deficits. It's going to add trillions to the national debt. And yet, no one in Capitol Hill seems to care very much. It comes up, and then occasionally somebody makes a speech and denounces that whole prospect. But other than that, it seems like they're just pushing forward with it. What's the deal there?

MIKE: Well, one of the most interesting aspects of the bill to me is that it includes, the House version includes, a $4 trillion increase to the debt ceiling. The Senate version actually makes that a $5 trillion increase to the debt ceiling. Basically saying, you know, "We can just keep accumulating more debt." The bill itself is going to raise federal deficits. It's going to increase the debt. And you're absolutely right, no one seems to be overly concerned about this.

You know, this is a trend that's been going on. There's been lots of talk for years and years about how we need to get the deficit and the debt under control. And when push comes to shove, those decisions are hard. And they're hard politically, and they don't seem to make much progress on it. I have long said that one of the reasons to me that that's true is we have a $36 trillion debt.

To the ordinary person that just sounds like a made-up number. It doesn't mean anything. And I don't think a lot of people understand how or why that affects them or they should care about it. And so I think that limits the amount of pressure that is on Congress, because people just don't understand it. It's too big to kind of get your arms around. And so in your world, I think the place that really has the potential to send a big signal is the bond market. And we're starting to see some signs that the bond market is growing increasingly concerned. I think we're watching auctions in the bond market more closely than I have ever in my career, probably, to see if there's demand out there. I think that may be the place where the real pressure starts to come, because I don't think it's going to be average voters.

KATHY: Well, love that, you know, Treasury auctions are now popular amongst the cognoscenti, right? The people in the know are watching the Treasury auctions, which was always sort of a wonky part of the market. You know, I'm of two minds on this. One is I agree with you 100% that the bond market is where push will come to shove, where the decision will have to be made to not continue to spend and reduce taxes the way we have for 25 years now. On the other hand, there's no math equation you can do to say "This is it." People have been squawking about this for years and years, and yet $36 trillion, yes, huge amount of money. Interest expense on the debt is rising to be one of the biggest contributing factors to the budget, eclipsing defense spending, which is huge. So it's clearly there. 

And yet the bond market has not really reacted that much. There's some upward pressure on longer-term rates now that wasn't there before. I think that's a combination of factors, but I think the rising supply of Treasuries to be auctioned on the horizon, certainly something to consider. But historically, there hasn't been any relationship between budget deficits or debt-to-GDP in the United States and bond yields. And I think the reason is that we are a big, wealthy country that can pay the debt. We have the capacity. We're not a struggling frontier market country heavily in debt to some foreign entities and unable to generate enough growth to service the debt. 

That's where you get the big defaults. And some country going to the IMF for funding and a huge currency decline, et cetera. Those are relatively unusual, to tell you the truth. And usually confined to those types of countries, not to countries, major developed countries with independent central banks and the wealth and the ability to finance the debt.

So I think that's why we haven't seen this huge rise in yields and probably haven't seen, you know, people back away from auctions. But I do think it's a contributing factor to yields rising at the long end. It certainly would be a limiting factor for yields to fall because you always have that increasing supply coming on the market. So it's kind of a delicate balance right now. We'll have to see how this plays out, but so far the market's been pretty accepting of the idea that "yeah, we're going to get a lot of debt, yeah, that's going to mean sub 4% yields at the long end, probably very unlikely or less likely than they otherwise would be, but not a cratering disaster." But again, famous last words, anything's possible. One of the big questions though related to that is on the Fed.

Now, President Trump has made it absolutely clear that he is not happy with Fed Chair Powell. He's called Jerome Powell many names, and he clearly wants Jerome Powell to lower interest rates. And the fact of the matter is, Jerome Powell doesn't by himself have the ability to lower interest rates. There's a committee, and the committee has to make the decision. But nonetheless, they tend to follow what the chair wants to do at the end of the day. So this leads us to, Powell's term is up next year. Clearly, he won't be renominated. What do you think President Trump is going to do? Any suggestions of who the top candidates are? I've heard a few make comments that seem like they're maybe auditioning or signaling that they're on the president's page when it comes to policy.

What do you think is going to happen there?

MIKE: Yeah, I think it's going to be really interesting that, you know, Powell's term is up in May of 2026. The president has said as recently as last couple of weeks that he's going to make an announcement soon about who that successor might be, which would be weird to have, you know, a name floating out there for months. And maybe that's part of the president wants this kind of shadow Fed chair who's going to maybe increase the pressure on Powell. 

But, as you know, I don't think Jerome Powell is likely to cave to any pressure, and there's a whole committee that has to vote on fed funds rate changes anyway. So we'll see who's next. Kevin Warsh, who is a former Fed governor, has been high on the list all along. The most interesting name that's been cropping up recently is Scott Bessent, the Treasury secretary. And he is someone who Wall Street knows and who has, I think, thus far been a very good communicator from this administration, one of the best in the administration, which has not strong communication skills in lots of ways. But I think Bessent has proven himself to be a very good communicator. He's the point person on tariffs. He's the point person on taxes. He's the point person on some of these negotiations that are going on in the trade space.

So I think that's an interesting name that's been out there. I also think he has gotten himself into the president's inner circle and is a trusted person there. So he has been saying, of course, as he would always say in this situation, that he likes his current job. He has no interest in looking for another job. But obviously, appointment to the Fed would be something I would think he would be very interested in if it actually happened.

That will be interesting. There are also potentially candidates who are already on the Fed, governors including Christopher Waller and Michelle Bowman, who was just made the vice chair for supervision at the Fed Board of Governors. But I also think this president can also surprise and likes to surprise people and some name that no one is talking about could arise. So we'll see.

KATHY: Yeah, I think one of the risks of naming someone too early, A, is it does create this shadow Fed and undermines the current Fed, but it also runs the risk that that person ends up not agreeing with the president by the time Powell's term is up. And that could lead to problems and changing horses mid-race and all that. I think it's a risky strategy from a number of points of view, but you know, it's also this is a president who takes risks. So it would not surprise me at all. So interesting. 

So let's just kind of wrap this up. We've talked about the "One Big Beautiful Bill." We've talked about immigration. We've talked about tariffs. What do you see as some other key policy issues for investors in second half of the year?

MIKE: Yeah, Kathy, I'll mention three. First off, you know, the "One Big Beautiful Bill" has tons of spending, tons of taxes, but the thing it doesn't do is the sort of routine annual funding of the government. And so that is looming out there. The government's fiscal year starts on October 1st. Congress is supposed to pass the 12 appropriations bills that fund every government agency and every federal program every year by October 1st, or we get to that point, which seems to happen every year where there's a threat of a government shutdown. 

Given the partisan divide, and given that this "One Big Beautiful Bill" is a purely Republican, no-Democratic-support type of activity, I don't think the odds are very good that there's going to be some magic government funding agreement between now and October 1st. So I think that's going to be an interesting one to watch because I think the risk of a government shutdown in the fall is very real. So we'll have to see how that plays out.

Number two, the maybe only truly bipartisan issue going on in Washington right now is cryptocurrency. The Senate just passed a bill to regulate for the first time ever stablecoins, which are a type of cryptocurrency that's pegged to the dollar. The House of Representatives is working on an even broader bill that would create, really for the first time, a regulatory framework for the crypto space.

It's not even clear who's in charge. Is it the SEC? Is it the Commodity Futures Trading Commission? This bill would define who's in charge and put some parameters around the space. So that's a place where there's genuine bipartisan support. I think both sides realize that, whatever you think of crypto, it's here to stay and that it needs a regulatory framework. So that's definitely one to watch. And then the final thing is that piece of Trump's plan coming in that I think was a core piece of his agenda but hasn't really happened yet is deregulation. There's no question that this administration is pushing really hard for deregulation. We saw some early executive orders that would speed up deregulation. There was one that said that for every new regulation that was proposed, you had to get rid of 10 to move that forward.

But it just takes a while. The regulatory process, it takes people, new people in their positions, and they have to get settled in. And that's happening now. And so I think in the second half of the year, you'll see more deregulatory efforts across all sorts of different parts of the government. 

So I think deregulation is going to be an emphasis in the second half of the year and into a 2026 where you'll see businesses probably pretty happy with some things that are being rolled back. And so that's a piece that may be kind of a positive for the business community as it unfolds, even as there's uncertainty around tariffs and other things. So that's a piece that I would definitely watch in the second half of the year.

KATHY: Yeah, I know that in the financial sector, there's a lot of excitement about that for banks to be able to deploy capital more aggressively. They've been kind of limited because of the post-financial-crisis regulations that went into effect. And I'm sure that there are other industries that have similar points of view. I just don't know how widespread the benefits will be, whether it's just big businesses, small businesses, because a lot of regulation that businesses deal with small and medium-sized business, it's usually local regulations that get them, not at the federal government level. 

So it'll be interesting to see how it plays out and then, of course, what impact it has on the economy. So you're right, that's a potential positive. Markets would love it if they saw substantial deregulation, I'm sure, but it has not been highlighted much recently. 

So Mike, that's been great. Thank you again. I know you're a little bit busy these days in Washington keeping track of everything that's going on. So really, really appreciate your time.

MIKE: Well, great to be with you, Kathy. Thanks so much for having me.

LIZ ANN: It's that time of the episode to look ahead, not just to next week, but we're taping this a couple of days before the posting of this episode. So there's even some things happening from a data perspective, the remainder of this week. So what's on your radar aside from the obvious geopolitical news?

KATHY: Yeah, I think the big news in the next week or so is going to be the employment data. 

LIZ ANN: And that comes the third, right? We get that the day before because Friday is the holiday, right?

KATHY: That's right. So we'll get lots of employment data squeezed into a short period of time next week. The ADP numbers, the JOLTS report—that stands for Job Openings and Labor Turnover Survey—jobless claims, and the monthly unemployment report. So lots and lots of data on the job market, which will be helpful because, as you know, we've chatted about so many times, there seems to be some softness underneath the market. The unemployment rate is kind of holding steady, but new hiring is soft, and but quits are soft. So it's kind of holding the rate down. But under the surface, it's looked like it's looking like it's getting softer. So I'm really going to be focused on that, because if there is a lever that pushes the Fed to move sooner rather than later, I think it's going to be the employment data. In addition to that, kind of a raft of other indicators, but that's the one I'm focused on. What about you, Liz Ann?

LIZ ANN: Yeah, and there's another labor market report coming out that, in the past hasn't always garnered a lot of attention, but I think these days is maybe a bit more important, and that's the Challenger, Gray & Christmas layoff announcements. And in light of all the obvious uncertainties and instability in terms of policy, that'll be interesting. It's been running at sort of a double-digit pace increase on a year-over-year basis, but up off of fairly low levels. So watching that because that's clearly leads things like filing for unemployment claims and payrolls coming down. So I'll have that on my radar. We get some housing data between now and the end of next week, including new and pending home sales and building permits.

We also get, and here is more of an esoteric indicator that I think in this backdrop of tariffs maybe takes on a little bit more importance, which is the wholesale and retail inventory data to see what has been built, what's been drawn down, especially important in light of all of the tariff front-running that was done in the first quarter. And then I think next week or maybe the end of this week, we also get the PCE, the Personal Consumption Expenditures Price Index, which is the Fed's preferred measure of inflation. You don't tend to get big outlier readings on that relative to what the consensus expectation is, in part because the data that we get via the Consumer Price Index and the Producer Price Index, you can map some of those components over to the PCE, but given it's the Fed's preferred measure and everybody's got a spotlight on the Fed, that could be important. So those are the things on my radar.

KATHY: Yeah, just on the labor market, you mentioned the Challenger, Gray & Christmas survey. There's also, if you track the WARN notices, so this is the Worker Adjustment and Retraining Notification Act, means that if you're a significantly large enough employer, and you're going to lay off a fairly large number of people, you have to give notice in advance. And those have been rising as well. So that's something else that I think we will be keeping an eye on and seems to corroborate what you're seeing in the Challenger survey as well.

LIZ ANN: So that's it for us this week. As always, thank you for listening. You can keep up with us in real time on social media. We both post regularly on X and LinkedIn. I'm @LizAnnSonders on X and LinkedIn. Please make sure you're following the real me. Still have lots of imposters.

KATHY: And I'm @KathyJones—that's Kathy with a K—on X and LinkedIn. And you can always read all of our written reports, including charts and graphs at schwab.com/learn. And of course, if you've enjoyed the show, we'd be really grateful if you'd leave us a review on Apple Podcasts, a rating on Spotify or feedback wherever you listen. And please tell a friend about the show. We're off again next week. The stock market will be closed on July 4th, but we'll be back with a new episode in two weeks, so stay tuned.

For important disclosures, see the show notes or visit schwab.com/OnInvesting where you can also find the transcript.