Strong U.S. GDP and now a Fed rate cut. In Europe, Germany’s crisis shows no sign of easing

The Fed’s independence is being called into question as markets prepare for a rate cut in September. In the first half of the year, as many as 11,900 German companies threw in the towel.

Last week the S&P 500 closed at a new high thanks to solid U.S. GDP and consumption data, which reassured investors despite tensions over tariffs. Nvidia lost ground after earnings, but optimism around AI supported chip stocks such as Broadcom and Micron. On 29 August, however, U.S. futures fell as investors awaited inflation data after the upward revision to GDP. So, despite the record highs in the S&P 500, concerns remain about the timing of the rate-cut trend and geopolitical risks, although markets are pricing in an 87% chance of a rate cut in September. Meanwhile, gold, boosted by a weaker dollar and fears over the independence of the Fed, hit a five-week high at $3,417 an ounce.

What is most worrying is the steady pressure President Trump is exerting on the Fed. On this issue, former New York Fed President Bill Dudley warns that Trump’s attempt to fire Governor Lisa Cook could undermine the central bank’s independence. If he succeeds, Trump could soon appoint a majority on the Fed board, gaining influence over interest-rate policy, and that would open the door to politically driven rate cuts and internal chaos. Markets have not reacted yet, but Dudley believes they should be worried.

On the tariffs front, last Thursday the EU agreed to remove tariffs on U.S. industrial goods and grant concessions on seafood, in exchange for lower U.S. tariffs on cars. The deal still needs EU approval, while tensions remain over a digital tax on U.S. tech companies. In Europe, bank shares are close to their highest levels since 2008, up 40% since the start of the year, thanks to solid earnings and lower fears of rate cuts. Analysts talk about a “sweet spot,” but political tensions in France and rising defaults could test sentiment. In addition, German retail sales fell 1.5% in July, far worse than expected, while weak consumer demand is adding pressure to an economy already in contraction.

And if there is one major source of concern for the European economy, it is certainly the situation in Germany, once the locomotive of the entire continent. In the first half of 2025, as many as 11,900 German companies threw in the towel, an increase of 9.4% compared with the previous year. The bankruptcies of giants such as Gerry Weber and Lilium show how the crisis can hit both companies with decades of history and start-ups in potentially explosive sectors. In July, corporate insolvencies in Germany rose by 19.2% year on year; an escalation that has dashed hopes of a recovery after a brief and fleeting decline in May. According to the Federal Statistical Office, the wave of bankruptcies has never really stopped, and all this seems to be the sign of an economic and structural crisis that stems from mistakes made over many years.