Wait and See Mode 🗓️

Market Musings 4/16/2025

Quick thoughts on the markets and major portfolio news. Not on Ursa yet? Download Ursa from the App Store!

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Markets tumble after Powell warns of rising #Inflation and weaken #LaborMarkets

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The Fed appears to be caught off-guard by the magnitude of the #Tariffs. Powell noted they were well beyond their worst case scenario expectations.

Here’s our takeaways:

First, Powell is warning of higher #Inflation and slower economic growth. He notes economists downgrading outlooks, but doesn’t see the US slowing into a #Recession yet.

Market pundits are likely a little more on the bearish side with stagflation chatter. Stagflation is high inflation, slow growth, and high unemployment－essentially a poor economy compounded by higher prices.

While not overly pessimistic, Powell is still warning of deteriorating conditions and a scenario where the Fed’s two primary objectives, #Inflation and #LaborMarkets, may conflict. So, what happens here?

Powell called it a “challenging scenario”. However, the Fed would prioritize whichever objective was further away from its target. This is where market started to tumble…

Powell noted #LaborMarkets were relatively stable while #Inflation progress may face additional challenges. This commentary felt hawkish and seems to be favoring the #Inflation side of the equation.

This perspective was likely further cemented as Powell reiterated “no hurry” for #RateCuts and wanted to continue to “wait and see”. Now this isn’t surprising as the Fed has typically been notoriously slow to react. However, this gave markets jitters as the Fed seems unlikely to try to get ahead of any potential impact.

So, what now? Well, the next Fed meeting is in early May, but likely not much to see there…

March #Inflation was a positive surprise, but it’s pre #Tariffs. We might not see #Tariffs impact on #Inflation for a couple more months due to built up inventory and policies are still in flux. 

#LaborMarkets may be slowing, but unlikely to show any significant weakness yet. We’ll likely need companies to sour on outlooks for that.

Meanwhile, companies are reporting Q1 earnings are now, but again Q1 was mostly unaffected. We could see some outlook warnings, but hard results wouldn’t likely be until Q2 in July at the earlier. However, we could get whiffs of layoffs picking up ahead of that.

Finally, #ConsumerConfidence has already tanked, but we’d still need to see it flow through. Consumer spending still appears to be strong, but potentially is due to consumers trying to get ahead of the expected #Tariffs impact. Again, we’ll need more time to see any change.

So, I guess we’re all in the Fed’s “wait and see” mode for now…