Without independence, the Federal Reserve couldn’t be trusted to give priority to low inflation over the president’s other priorities, writes Greg Ip for The Wall Street Journal.

Looking at the week ahead, provisional purchasing managers’ surveys on U.S. manufacturing and services sector activity during July will be the highlight on the data front. Markets are still trying to assess the extent of any economic damage from Trump’s tariff policies.

A decision by the European Central Bank will be the other highlight of the week, where interest rates are expected to be left on hold after seven consecutive reductions.

In Asia, markets are focused on Japan’s Upper House elections, which could unseat Prime Minister Ishiba and delay trade talks with the U.S. A new coalition may push for aggressive fiscal easing and tax cuts, complicating its central bank’s path to policy normalization. 

The U.S. has endured a series of inflationary shocks in the past few years: pandemic disruptions, massive fiscal stimulus, Russia’s invasion of Ukraine, an immigration clampdown, tariffs and soaring projections of national debt.

Yet throughout, investors have expected that in a few years’ time inflation will be around 2%. The reason: They instinctively assume that no matter the shock, the Federal Reserve is there to keep inflation low, like the brakes on a car.

If President Trump succeeds in forcing out Fed Chair Jerome Powell, that assumption will be shattered. The Fed would no longer be an independent check on the government, but just another part of that government with inflation subordinated to other priorities, such as the cost of the national debt.

• How Bessent Made the Case to Trump Against Firing Fed Chair Powell
• Waller Says He Would Accept the Fed’s Top Job If Asked
• The Home-Builder Heir Who Is Stoking the Jerome Powell Frenzy

China left its benchmark lending rates unchanged in July, a widely expected move after a cut in May aimed at cushioning the impact of trade frictions with the U.S. The one-year loan prime rate remained at 3.0% and the five-year rate was unchanged at 3.5%, according to the People's Bank of China on Monday. The rate hold came after a 10-basis-point cut in both rates in May. The hold was also widely expected as China's central bank kept its policy rates unchanged this month. A cut in policy rates typically portends a benchmark rate cut later in the month. (Dow Jones Newswires)

The European Central Bank is expected to leave borrowing costs unchanged for the first time in a year Thursday, but that might prove to be a brief pause if President Trump pushes ahead with higher tariffs on imports from Europe.

The eurozone’s annual rate of inflation was at the ECB’s target in June, and while the central bank’s economists expect it to fall below that level in 2026, they also expect it to rebound in 2027. Read more.

The S&P 500 stock index fell by 19% between February and April. The world held its breath and waited for the bottom to drop out. But that didn’t happen. Now businesses and consumers are regaining their swagger, and evidence is mounting that those who held back are starting to splurge again.

Stablecoins are poised to become a part of the mainstream financial system, and banks are on high alert about how the cryptocurrency could threaten their business. The House voted 308-122 Thursday to pass a bill that spells out some ground rules for stablecoins, which function as digital dollars in the wider crypto world. The Genius Act is now headed to President Trump, who has indicated he would sign it.

10 a.m.: Leading Indicators
11:30 a.m.: Federal Reserve Board of Governors closed meeting

9 a.m.: Johnson Redbook Retail Sales Index
10 a.m.: Richmond Fed Business Activity Survey
10 a.m.: SEC Small Business Capital Formation Advisory Committee Meeting
1 p.m.: Money Stock Measures

A firing of Federal Reserve Chair Jerome Powell would be unlikely to speed interest-rate cuts by the FOMC, Barclays's rates strategists say in a note. "Indeed, it could backfire, with the FOMC remaining on hold for longer or even hiking the funds rate, if the market questioned the Fed's independence and pushed up inflation expectations and longer-term yields," they say. The strategists doubt that a new chair would manage to ease the monetary policy stance significantly, as he or she would still be working with 11 other FOMC voters. — Emese Bartha

U.S. regulatory milestones have been key to boosting demand for cryptocurrencies this year, TP ICAP digital assets director Hina Joshi says in a note. "Regulation really has been front and centre driving everything within the crypto market and it's the new administration in the U.S. that is really pushing crypto forward." — Renae Dyer

• The European Union thought it was on the verge of a deal with the U.S. to keep tariffs in check. Now it is readying a counterattack.
• Eurozone firms are bolstering their sales to their domestic markets as they attempt to adapt to new U.S. trade tariffs, according to a quarterly European Central Bank survey. Almost 40% of companies surveyed reported refocusing sales within domestic and European Union markets in reaction to the raising of new levies on EU goods imports, the ECB survey on access to finance said. (Dow Jones Newswires)
• Europe illustrates how Chinese companies gained market share to fuel the nation’s exports.
• China’s exports of rare-earth magnets last month increased nearly threefold from the previous month after the country lifted some export controls on the critical industrial inputs following a deal with the U.S.
• Japan’s ruling coalition suffered a significant loss in a parliamentary election Sunday, a setback that risks derailing delicate trade negotiations with the U.S. just weeks before punishing tariffs are set to take effect.

WSJ Pro Central Banking brings you central banking news, analysis and insights from WSJ’s global team of reporters and editors. This newsletter was compiled by news associate Roshan Fernandez in New York. Send your tips, suggestions and feedback to roshan.fernandez@wsj.com.