Maybe the tariff chaos will relent enough this week for investors and traders to pay attention to very important bank earnings reports. I’m looking for clues consumer debt, corporate loams, and stress in the financial system So far bank earnings reports are mixed.
Today’s Hot Money Move is Where’s the Systemic Risk This Time? I’m watching the banking sector for signs of a liquidity crunch-—specifically, the growing pile of “stranded loans” from private equity buyouts. Banks lent billions for these deals but now can’t offload the debt to investors, locking up capital that should be flowing elsewhere. If this logjam gets worse, the Fed could see it as systemic risk—-just like in 2008 or 2020-—and step in with a lifeline. The Play: Watch mid-tier banks (think PNC, not JPMorgan) when earnings drop in April. If they start warning about stuck loans, it’s a signal the Fed might move. That’s when liquidity fears could turn into a market-wide event. For now, it’s a waiting game—-but one worth tracking closely.
Today’s video is Why the Fed is Almost Certain to be Wrong. Blame it in lags. Lags make economic forecasting really difficult at the best of times. How long does it take policies like tariffs and tax cuts to actually affect the economy and show up in the data? Right now, we’re dealing with lags from a tariffs that will eventually raise consumer prices. We don’t know when this will hit people in the wallet and really start to affect the economy as a whole. Another problem is the upcoming Trump tax cuts. This will be stimulative to the economy and the Fed may have to look at raising rates again in effort to slow more inflation. If, however, the tariffs slow the economy enough to balance out the stimulative effect of the tax cuts, the Fed would look at lowering rates. There’s really little that monetary policy can do about tariff-caused price increases. White House accounting says the tariffs and tax cuts will balance each other, but it’s tough to say if the money coming out of consumer pockets are the same pockets benefiting from the tax cuts. All this to say, the Fed remains between a rock and a hard place, and has little chance of getting this right and will almost certaInly make a mistake. The question is, How big will the mistake be?
The Federal Reserve’s preferred inflation measure rose in February at a faster pace than in January. The rate of increase was also greater than economists had expected
Friday’s core personal consumption expenditures (PCE) price index excluding food and energy—-the central bank’s preferred measure of underlying inflation-—is forecast to show signs of stickiness.
That didn’t take long. Wednesday afternoon the Federal Reserve decided to keep its benchmark interest rate steady–no rate cut. Wednesday night President Donald Trump renewed his call for the Federal Reserve to lower interest rates as he criticized the central bank’s decision. “The Fed would be MUCH better off CUTTING RATES as U.S.Tariffs start to transition (ease!) their way into the economy,” Trump wrote on Truth Social. “Do the right thing.” Trump added: “April 2nd is Liberation Day in America!!!” President Trump’s criticism of the Fed’s decision certainly isn’t a surprise.
The Federal Reserve’s Open Market Committee surprised no one with today’s vote to keep the benchmark federal funds rate in a range of 4.25%-4.5%. The mild surprise came in the revisions to the Dot Plot projections. The Fed continued to pencil in two interest rate cuts for 2025. Some investors had feared that the Fed would show it has moved to projecting just one cut in 2025.
I expect less drama than markets now fear from Wednesday’s meeting of the Federal Reserve’s interest-rate-setting Open Market Committee.
This morning’s report on Consumer Price Index (CPI) inflation came in better than expected by economists. On a monthly basis, the all-items or headline inflation rate rose just 0.2% last month. That’s lower than economists’ expectations and a drop from a large 0.5% increase in January. Core inflation, which strips out volatile food and energy prices, also rose just 0.2% on a monthly basis, down from a 0.4% rise in January. Core prices were up 3.1% for the year, an improvement from the prior month. Headline or all-items Consumer Price Index (CPI) inflation rose at a 2.8% annual rate in February. Three reasons not to feel astoundingly optimistic about these numbers.
We haven’t had a really severe bout of stagflation since the late 1970s and early 1980s–but suddenly that scenario of very slow growth with high unemployment but with high inflation too that prevents the Federal Reserve from just cutting interest rates get growth back on track is back on Wall Street’s worry list.
And really serious stagflation would be something to worry about. In 1980–just before the Federal Reserve created a deep recession and bear market to break the back of stagflation–inflation hit almost 14.5 and unemployment reached 7.5%
Just minutes after a slide that drove the S&P 500 down over 1%, the gauge staged an “oversold bounce” after Federal Reserve Chair Jerome Powell told a New York audience that the economy is fine. “Despite elevated levels of uncertainty, the US economy continues to be in a good place,” Powell said at an event Friday in New York hosted by the University of Chicago Booth School of Business. “We do not need to be in a hurry, and are well positioned to wait for greater clarity.”
I see the beginning of two weeks of extraordinary volatility. Look what’s on deck.
