In a ruling that has left constitutional scholars reaching for their smelling salts, the Supreme Court has delivered a verdict that simultaneously clips the wings of Donald Trump’s executive action and widens the runway for presidential power. The decision, handed down this morning, is a masterclass in judicial nuance that will have markets and mandarins alike reassessing the balance of power.
First, the curb. The court struck down a Trump-era executive order that sought to bypass congressional approval for certain spending initiatives. For those of us who fret over fiscal discipline, this is a welcome check. The administration’s penchant for unilateral spending had gilt yields twitching, with the 10-year benchmark at one point testing 4.5% in anticipation of a ballooning deficit. The ruling reaffirms the principle that the purse strings belong to Congress. That is a win for the bond vigilantes and a slap on the wrist for executive overreach.
But here is the twist. In the same breath, the court widened the scope of presidential immunity from civil lawsuits for official acts. This is a different beast entirely. By shielding the president from litigation over policy decisions, the court has effectively reduced the cost of executive action. In market terms, it lowers the risk premium on bold presidential moves. Expect to see more executive orders, more regulatory whiplash. For those who trade on policy uncertainty, this is a Ricardian equivalence moment: the president can act with impunity, but the market will price in the consequences.
The net effect is a paradox. The president’s hands are tied on spending but freed on everything else. Capital flight from the US dollar is a real possibility if this leads to erratic policies. The pound sterling has already seen a bump against the dollar this morning, a classic flight to safety as traders digest the implications. Meanwhile, the FTSE 100 opened flat but energy stocks are up, perhaps betting on Trump’s deregulation agenda going full throttle.
Central bank watchers will note that this ruling gives the Federal Reserve cover to stay hawkish. If the president becomes a loose cannon on trade or immigration, the Fed will have to compensate with tighter monetary policy. Inflation expectations, already sticky, could rise further. The 5-year breakeven rate is up 3 basis points as I write this.
My bottom line: this ruling is not binary. It is a hedge fund manager’s nightmare: long on executive power but short on fiscal discretion. For investors, the message is to diversify away from sectors that rely on federal spending and towards those that benefit from deregulation. The market abhors uncertainty, but it rewards those who price it correctly. The Supreme Court has just thrown us a curveball. It is time to adjust our portfolio of assumptions.
