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Tag: fed interest rates

  • The Fed may have reassured Powell that it’s safe to leave the board early when a new chair takes over. ‘I think he’s done with this job’ | Fortune

    After enduring a string of attacks on the Federal Reserve, Jerome Powell may now feel confident that the central bank is in good enough hands to step away completely when a new chair takes over.

    Earlier this month, the Fed reappointed its regional bank presidents a bit earlier than usual, surprising Wall Street and easing concerns about its independence in the face of President Donald Trump’s continued demands for steeper rate cuts.

    It came after recent suggestions from the Trump administration that new conditions ought to be placed on the Fed presidents, raising fears it was eyeing a purge. That fit a pattern of extreme pressure on policymakers. Trump has relentlessly insulted Powell for not easing more, considered firing him, threatened to sue over cost overruns on the Fed’s headquarters renovation, and is still attempting to oust Governor Lisa Cook.

    Given Powell’s commitment to Fed independence, there were doubts that he would leave the board of governors when his replacement as chair comes in, bucking tradition, in order to retain a vote on the rate-setting Federal Open Market Committee and help ensure policy stays apolitical. His term as chair expires on May 15, 2026, but his term as a governor extends to January 2028. 

    But with the regional presidents re-upped, that adds some stability to the FOMC, which is comprised of governors and presidents, potentially letting him ride off into the sunset.

    “I don’t think Powell wants to stay. I think he’s done with this job, and I don’t blame him,” Christopher Hodge, chief U.S. economist at Natixis CIB Americas, told Fortune. 

    He put a high probability on Powell leaving the board, but a few uncertainties remain. One is Trump’s pick to be the new Fed chair. The current names under consideration—Kevin Hassett, Kevin Warsh, and Chis Waller—would be palatable, but an unserious candidate from left field would give Powell pause, according to Hodge, who previously served as principal economist at the New York Fed.

    Another unknown is how the Supreme Court will rule in Trump’s effort to fire Cook over mortgage fraud claims, which she had denied. If the justices determine the White House can easily dismiss governors, then Powell might stay on.

    “But ultimately, I think this reappointment of these regional Fed presidents is a barrier that he wanted to get over, and I think that certainly helped clear the way for him stepping down after the meeting in May,” Hodge said.

    He added, “as long as Powell is fairly certain that the guardrails are staying in place, and that the Fed is in a long-run position to stay credible, then I think he’s going to step down” from the board of governors. 

    Robert Kaplan, vice chairman at Goldman Sachs and former president of the Dallas Fed, said the reappointment of the Fed presidents was big news that didn’t get much attention.

    He told CNBC last week there was some concern that a reshuffling on the board of governors would lead to changes in the Fed presidents, who must be approved by the governors.

    “I think it’s possible that that won’t happen. And that means the next Fed chair will have to get seven votes through persuasion and debate and getting a consensus. You won’t come in with seven votes wired,” Kaplan added, referring to the votes need for a majority on the 12-member FOMC.

    He also urged Powell to not remain on the board when his term as chairman expires. If Powell hangs on, he might be seen as a thorn in the side of the new chair, Kaplan explained.

    “In the same way a CEO would leave and leave it to their successor, I think that’s the gracious thing to do,” he said. “I think Jay is a gracious person, and I think it’s the right thing for him to do.”

    Jason Ma

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  • The Fed just ‘Trump-proofed’ itself with a unanimous move to preempt a potential leadership shakeup | Fortune

    The Federal Reserve’s early reappointment of its regional bank presidents took markets by surprise and eased concerns the central bank would soon lose its independence as President Donald Trump continues demanding steeper rate cuts.

    On Thursday, the Fed announced 11 out its 12 bank presidents were re-upped, except for the Atlanta Fed chief role as Raphael Bostic had announced previously that he’s stepping down.

    The presidents’ five-year terms were due to end in February, and prior reappointments have typically come closer to expiration dates as they historically have been routine affairs. But recent suggestions from the Trump administration that new conditions ought to be placed on the presidents raised concerns it was seeking a wider leadership shakeup.

    Earlier this month, Treasury Secretary Scott Bessent floated a three-year residency requirement for Fed presidents. Days later, National Economic Council Director Kevin Hassett, who is the frontrunner to become the next Fed chair, endorsed the idea.

    While Fed presidents are nominated by governing boards drawn from their respective districts, the Fed’s board of governors approve them. As a result, tipping the balance of power on the Fed board with Trump appointees could conceivably give them the ability to reshape the Fed presidents as well.

    Meanwhile, the rate-setting Federal Open Market Committee is comprised of the seven members of the Fed board, plus five of the 12 Fed presidents, with four of them rotating on an annual basis. In recent FOMC meetings—including Wednesday’s—Fed presidents have been more resistant to rate cuts while Trump-appointed governors have been more aggressive in calling for cuts.

    Deutsche Bank strategist Jim Reid pointed out in a note on Friday the 10-year Treasury yield edged higher after the Fed’s reappointment announcement, as bond investors priced in fewer rate cuts.

    “The regional presidents’ current terms expire in February so the advance announcement suggests that the Board was united in wanting to avoid the risk that the reappointment process raises questions over Fed independence,” he added.

    Justin Wolfers, a professor of public policy and economics at the University of Michigan, was more blunt about the Fed’s surprise news.

    “If I’m reading this properly, they just Trump-proofed the Fed,” he wrote in a post on X.

    What’s also notable about the reappointment is the unanimous decision to bring back the Fed presidents suggests the Trump-appointed governors went along with it as well.

    That includes Stephen Miran, who is on leave as the White House’s chairman of the Council of Economic Advisers while filling a vacancy on the Fed.

    Prior to joining the administration, he had urged an overhaul of the Federal Reserve to give at-will power to the U.S. president to fire Fed board members and Fed bank presidents; hand over control of the Fed’s operating budget to Congress; and shift the Fed’s regulatory responsibility over banks and financial markets to the Treasury. 

    The changes would diminish the Fed’s power in favor of the White House so much analysts at JPMorgan warned earlier this year Miran’s appointment “fuels an existential threat as the administration looks likely to take aim at the Federal Reserve Act to permanently alter U.S. monetary and regulatory authority.”

    Jason Ma

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  • Wall Street is on tenterhooks about the Fed’s ‘rare, genuinely suspenseful’ December meeting, because the committee itself doesn’t know what to make of the data—or of each other | Fortune

    If the market doesn’t seem sure whether or not to expect a base interest rate cut next month, it’s not alone—members of the Federal Open Market Committee (FOMC) themselves may have little clue which way the vote is going to go.

    In the run-up to this week, the mood was one of disappointment that the FOMC wouldn’t deliver a final cut for 2025, an action many analysts had priced in since this summer. A week ago, investors hedged their bets at a 50/50 likelihood of a base rate cut to 3.75 to 4%, from its current position at 4 to 4.25%.

    But the tides changed quickly, based on both data and comments from members of the FOMC, and at the time of writing, CME’s FedWatch barometer places an 81% probability of a cut early next month.

    A key part of the shift came after comments from the New York Fed’s John Williams, who joined voices like Trump appointee Stephen Miran and Governor Chris Waller in advocating for a cut. This, analysts warned this morning, may need to be taken with a pinch of salt: Members will be asking whether their peers are truly dovish, or are ruffling feathers in order to catch the eye of President Trump and secure a nomination for Fed Chairman next year.

    Data isn’t making the path much clearer. The first payroll report after the end of the government shutdown painted a pallid picture of the jobs market. Powell called it a “low hire, low fire” environment. The unemployment rate remained relatively stable at 4.4%, and the jobs market added a relatively small 119,000 roles in September.

    Offsetting the tepid employment outlook, which forms one part of the Fed’s mandate, is the inflation question. Members of the FOMC are mindful that inflation remains comfortably ahead of its 2% target, a trend that is likely to come into even greater focus during a period of high consumer spending.

    This combination means holiday spending data holds more levity than usual; in fact, it is “crucial,” wrote Professor Jeremy Siegel, Emeritus Professor of finance at The Wharton School of the University of Pennsylvania.

    Writing for WisdomTree yesterday, where he is senior economist, Professor Siegel added: “Real-time credit-card reads and retail commentary will reveal far more about underlying consumer momentum than backward-looking payroll reports that remain distorted by the shutdown. Strong spending will tilt the Fed toward a December pause; soft spending makes the December meeting genuinely live.”

    As such, “this is the most uncertain FOMC meeting in years because the committee itself doesn’t yet know the answer,” added Professor Siegel, “Powell prefers to signal decisions well in advance, but the data simply is not speaking loudly enough.”

    Williams signalling an openness to a cut is “groundwork” from the dovish camp, the professor added, while hawks are insisting the data is not strong enough either way to prompt action: “It sets up a rare, genuinely suspenseful meeting—one where investors should expect volatility around both the statement and the new dot plot.”

    A question of motivation

    Goldman Sachs’s chief economist Jan Hatzius shares the opinion of President Williams, arguing that the payroll data for September is weak enough to motivate a cut. In a note released Sunday, Hatzius wrote: “His view is likely consistent with that of Chair Powell—who almost certainly wrote down three cuts in the September dot plot—and a majority of the 12 voting FOMC members, though not necessarily a majority of all 19 FOMC participants.

    “With the next jobs report now scheduled for December 16 and CPI for December 18, there is little on the calendar to derail a cut on December 10.”

    However, with Chair Powell due to step down next year—much to the joy of President Trump, who has repeatedly criticised him for refusing to cut the base rate—it may be hard to separate the through doves from those auditioning for the role.

    As UBS chief economist Paul Donovan said this morning: “U.S. Federal Reserve Governor Waller, who President Trump is considering as a candidate for Fed Chair, supported Trump’s calls for more rate cuts yesterday. Waller advocated a December rate cut, which got markets somewhat excited, although Waller justified this with suggestions that the U.S. labor market might perhaps be in trouble.”

    Donovan countered that a higher inflation rate is being accommodated by U.S. households saving less, suggesting a level of confidence in the jobs market. “If Waller is right,” Donovan added, “the U.S. economy is at quite significant risk, and this should be a major concern for financial markets.

    “If, however, this call is merely a subtly-disguised cry of ‘Pick me! Pick me!’ aimed at Trump, then markets will focus on the benefits of monetary accommodation and not the mooted risks it is purportedly offsetting.”

    Eleanor Pringle

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  • Ken Griffin has a warning for Trump and the GOP: ‘I would not underestimate how grating a 3% inflation rate could be’ on Americans | Fortune

    For Citadel CEO Ken Griffin, the political implications of still-elevated inflation are not lost on him.

    Inflation has come down a lot from 9% in 2022 to 2.9% in the government’s latest CPI report. Core PCE prices, the Fed’s favorite gauge of inflation, rose 2.9% in August, matching July’s climb. 

    But inflation has been sticky as tariffs take hold, and Griffin predicted inflation will continue to be in the mid-2% to 3% range next year, still above the Fed’s 2% target.

    “The American voters have been exhausted of inflation,” he told CNBC on Thursday.

    In 2024, the high cost of living was a focal point in Trump’s reelection campaign, and Biden-era inflation hurt Democrats. They lost the White House and Congress, while Trump won all seven swing states.

    Many voters blamed Democratic policies—including stimulus spending—for sustained, high costs, exit polls found.

    “There’s no doubt that the president and the Republicans came to power on the back of frustration with inflation,” Griffin said. “I would not underestimate how grating a 3% inflation rate could be to tens of millions of American households.”

    Inflation could feature heavily in midterm elections next year, as the Republican Party looks to defend narrow majorities in the House and Senate. And voters are souring on Trump’s economy.

    A recent Reuters/Ipsos poll showed only 28% of respondents approved of Trump’s handling of their cost of living. A YouGov/Economist poll put Trump’s approval rating on the economy at an all-time low of 35%.

    One indicator of affordability has been a thorn in Trump’s side: high mortgage rates. Yet as Trump looks to the Fed for homeowner relief, many worry about political influence over the independent body.

    Trump has been criticized lately for pressuring the Federal Reserve and threatening its independence. Critics argue that his efforts to appoint loyalists to the Fed, public calls to lower interest rates, and attempts to remove a sitting governor represent a clear move to sway monetary policy for political purposes. 

    Griffin advised that continued Fed independence would be in Trump’s interest.

    “If I were the president, I would let the Fed do their job,” he said. “I would let the Fed have as much perceived and real independence as possible, because the Fed often has to make choices that are pretty painful to make.”

    The Federal Open Market Committee cut interest rates by a fourth of a percent earlier this month to buoy a slowing labor market. The move comes after months of continued pressure from the Trump administration on Fed Chair Jerome Powell and other committee members to cut rates.

    Still, President Donald Trump has been vocal about cutting rates further, even though the move likely will risk further price increases. 

    Griffin warned that erosion of Fed independence could lead to Americans conflating the White House and central bank.

    “If the president’s perceived as being in control of the Fed, then what happens when those painful choices have to be made?”

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    Nino Paoli

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  • ‘The era of Fed independence would be over,’ Cook’s lawyers warn while asking court to reject Trump’s ouster bid | Fortune

    Federal Reserve Governor Lisa Cook is asking a U.S. appeals court to reject the Trump administration’s latest bid to remove her from her post ahead of the central bank’s next vote on interest rates.

    In a filing with the court Saturday, attorneys on behalf of Cook asked the court to refuse an emergency request by the Trump administration for a stay of a lower court ruling that would clear the way for President Donald Trump to remove Cook from the Federal Reserve’s board of governors.

    Lawyers for Cook argue that the Trump administration has not shown sufficient cause to fire her, and stressed the risks to the economy and country if the president were allowed to fire a Fed governor without cause.

    “A stay by this court would therefore be the first signal from the courts that our system of government is no longer able to guarantee the independence of the Federal Reserve. Nothing would then stop the president from firing other members of the board on similarly flimsy pretexts. The era of Fed independence would be over. The risks to the nation’s economy could be dire,” according to the filing.

    The court has given the Trump administration the option to respond to Cook’s filing by 3 p.m. Eastern on Sunday.

    At stake is whether the Trump administration will succeed in its extraordinary effort to shape the board before the Fed’s interest rate-setting committee meets Tuesday and Wednesday. At the same time, Senate Republicans are pushing to confirm Stephen Miran, President Donald Trump’s nominee to an open spot on the Fed’s board, which could happen as soon as Monday.

    Trump has accused Cook of mortgage fraud because she appeared to claim two properties as “primary residences” in July 2021, before she joined the board. Such claims can lead to a lower mortgage rate and smaller down payment than if one of them was declared as a rental property or second home.

    Cook has denied the charges and sued the Trump administration to block her firing.

    On Tuesday, U.S. District Court Judge Jia Cobb ruled the administration had not satisfied a legal requirement that Fed governors can only be fired “for cause,” which she said was limited to misconduct while in office. Cook did not join the Fed’s board until 2022.

    The administration then appealed the decision and asked for an emergency ruling reversing the lower court order by Monday. In their emergency appeal, Trump’s lawyers argued that even if the conduct occurred before Cook’s time as governor, her alleged action “indisputably calls into question Cook’s trustworthiness and whether she can be a responsible steward of the interest rates and economy.”

    If the Trump administration’s appeal succeeds, Cook would be removed from the Fed’s board until her case is ultimately resolved in the courts, and she would miss next week’s Fed meeting, when the central bank is set to decide whether to reduce its key interest rate.

    If the appeals court rules in Cook’s favor, the administration could seek an emergency ruling from the Supreme Court.

    The Fed is under relentless pressure from Trump to cut rates. The central bank has held rates steady since late 2024 over worries that the Trump administration’s unpredictable tariff policies will reignite inflation.

    Last month, Fed Chair Jerome Powell signaled that Fed officials are increasingly concerned about weaker hiring, setting the stage for a rate cut next week. Most economists expect the Fed will cut its benchmark interest rate by a quarter-point to about 4.1%.

    When the Fed reduces its key rate, it often, over time, lowers borrowing costs for mortgages, auto loans, and business loans. Some of those rates have already fallen in anticipation of cuts from the Fed.

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    Alex Veiga, The Associated Press

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  • Dow futures rise as recession fears grow while Wall Street awaits the one thing that could derail Fed rate cuts

    Stock futures gained momentum on Sunday evening as investors brace for fresh inflation data and political turmoil overseas that could ripple through the bond market.

    That comes as Friday’s dismal jobs report ratcheted up recession fears while also locking in odds for a rate cut later this month from the Federal Reserve.

    Futures tied to the Dow Jones Industrial Average rose 94 points, or 0.21%. S&P 500 futures were up 0.23%, and Nasdaq futures added 0.38%.

    The yield on the 10-year Treasury was flat at 4.091%. The U.S. dollar was up 0.05% against the euro and up 0.65% against the yen after Japan’s prime minister announced he will step down after less than a year in office.

    More political turmoil in the world fourth-largest economy could rattle the bond market as investors gauge whether the next leader will lean toward fiscal discipline or more profligacy.

    Similarly, France’s government faces a confidence vote on Monday after bond vigilantes sent French yields higher on expectations for more gridlock and no progress on reining in deficits.

    U.S. oil prices rose 0.32% to $62.07 per barrel, and Brent crude added 0.40% to $65.76. That’s despite key OPEC+ members agreeing on another production hike meant to grab more market share.

    Gold fell 0.64% to $3,630 per ounce, but still hovering near record highs after recession fears sent safe-haven assets higher last week.

    More recession signals were lurking in the latest jobs data. On Sunday, Moody’s Analytics chief economist Mark Zandi point out that most U.S. industries have been shedding jobs rather than adding them for several months, warning that “this only happens when the economy is in recession.”

    Such labor market weakness basically guaranteed a Fed rate cut. According to CME’s FedWatch tool, Wall Street is certain that some kind of cut is coming when the central bank announces its policy decision on Sept. 17. The only question is whether it will be 25 basis points or 50 basis points. Right now, a 92% probability of a quarter-point cut is priced in.

    Perhaps the only thing that could put a rate cut in doubt is a surprise spike in inflation. The effect of President Donald Trump’s tariffs on inflation has been more muted that anticipated, but investors will get crucial updates.

    On Wednesday, the producer price index for August will come out, and economists expect a 0.3% month increase, cooling from the 0.9% surge in July.

    On Thursday, the consumer price index is due, and Wall Street sees a 0.3% gain, accelerating from the 0.2% pace a month earlier. On an annual basis, the CPI is also seen heating up, with August expected to see a yearly pace of 2.9%, up from 2.7% in July.

    But inflation in core consumer prices should remain steady at a monthly rate of 0.3% and an annual rate of 3.1%. Still, both the headline CPI and core CPI would continue to be above the Fed’s 2% target.

    On Tuesday, the Labor Department will publish preliminary benchmark revisions to its establishment survey data for 2025. With revisions earlier this year mostly trimming prior readings, more downward revisions could be due.

    Meanwhile, Fed Governor Lisa Cook is fighting Trump’s attempt to fire her, and a judge hearing the case could issue a ruling in the coming week, clarifying whether she will be able to participate in the FOMC meeting.

    In addition, the Senate could vote on Trump’s nomination of White House economic adviser Stephen Miran to the Fed’s board of governors, allowing him to take part in the meeting.

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    Jason Ma

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  • The Fed got it wrong and is late again, top economist says, as job gains collapse

    Allianz chief economic advisor Mohamed El-Erian said the Federal Reserve is behind the curve in lowering rates now that the economy is slowing, just as it was tardy in hiking rates when inflation was spiking.

    The latest jobs report revealed the U.S. economy added just 22,000 jobs in August with revisions to prior months showing June actually saw a decline. Meanwhile, the unemployment rate edged up to a four-year high of 4.3%.

    “I think they have gotten it wrong,” he told CNBC on Friday. “I think once again they’re late. They will cut in September, and I suspect there will also be discussion should they cut by 25 or 50” basis points.

    That would mark another policy mistake in recent years. As the economy began to recover from the COVID-19 pandemic, prices began surging, but the Fed was slow to hike rates. When it finally started in 2022, it launched the most aggressive tightening cycle in four decades, though the economy didn’t tip into a recession as was widely expected.

    El-Erian’s remarks echo President Donald Trump’s criticism of the central bank. Trump has regularly insulted Chairman Jerome Powell, and even toyed with firing him earlier this year. Meanwhile, he has moved to fire Fed Governor Lisa Cook, who is fighting her dismissal in court.

    The Fed should’ve cut rates in July, but Powell’s view of the job market was too narrow and ignored the weakness that was building under the surface, El-Erian said.

    The risk with waiting to provide support to a weakening labor market is that it can deteriorate in a “nonlinear” fashion, meaning that job losses can quickly accelerate, he explained.

    For his part, Powell has pointed to the unemployment rate, which has been relatively steady for more than year, noting that the supply of workers in the labor market has dropped alongside a decline in demand.

    Trump’s immigration crackdown has sent more than 1 million workers out of the labor force this year. As a result, the breakeven level of job gains that are needed to keep unemployment flat is lower than it used to be.

    At the same time, Fed’s dual mandate of price stability and maximum employment is forcing policymakers to balance the risks of further stoking inflation, which has been climbing as Trump’s tariffs ripple through the supply chain.

    Tariffs are also weighing on the job market. In a note on Saturday, Torsten Sløk, chief economist at Apollo Global Management, observed that job growth in tariff-impacted sectors is negative, while sectors not directly impacted by tariffs are declining but still in positive territory.

    There’s still time for the Fed to correct its mistake, and perhaps cut rates more aggressively, El Erian said. But the risks to the economy are elevated as lower-income households have seen their financial security decline.

    “Could they play catch-up? Yes, they could. Hopefully they will, but it’s a more risky operation than a lot of people expect it to be,” he warned.

    It’s also not certain the Fed can actually save the economy. Moody’s Analytics chief economist Mark Zandi previously warned that with inflation still climbing, the central bank will have a hard time coming to the rescue with a steep easing cycle.

    Similarly, JPMorgan Asset Management chief global strategist David Kelly said rate cuts will reduce interest income for retirees and encourage businesses to hold off on borrowing money and wait for rates to get even lower.

    “The whole history of the 21st century is rate cuts don’t stimulate growth,” he told CNBC on Friday. “They didn’t any in any way after the Great Financial Crisis. So don’t look to the Fed to bail out the economy.”

    On top of that, lower cuts could also raise fears that the reason the Fed is cutting because it sees a recession on the horizon, Kelly added.

    Combined with existing uncertainty over Trump’s tariffs and immigration crackdown, recession fears could act as another drag on the economy, he explained, noting that “the biggest tax the government levies is an uncertainty tax.”

    “There is a level of uncertainty here which is just causing people to freeze, and that’s really what you see in the hiring numbers,” Kelly said. “That’s the problem. Businesses aren’t laying off thousands and thousands. They’re just waiting to see, and the three most deadly words in economics are ‘wait and see.’ But when everybody decides to wait and see, what you see is not good.”

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    Jason Ma

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  • Stock market’s fate comes down to the next 14 trading sessions

    The next few weeks will give Wall Street a clear reading on whether this latest stock market rally will continue — or if it’s doomed to get derailed.

    Jobs reports, a key inflation reading and the Federal Reserve’s interest rate decision all hit over the next 14 trading sessions, setting the tone for investors as they return from summer vacations. The events arrive with the stock market seemingly at a crossroads after the S&P 500 Index just posted its weakest monthly gain since March and heads into September, historically its worst month of the year.

    At the same time, volatility has vanished, with the Cboe Volatility Index, or VIX, trading above the key 20 level just once since the end of June. The S&P 500 hasn’t suffered a 2% selloff in 91 sessions, its longest stretch since July 2024. It touched another all-time high at 6,501.58 on Aug. 28, and is up 9.8% for the year after soaring 30% since its April 8 low. 

    “Investors are assuming correctly to be cautious in September,” said Thomas Lee, head of research at Fundstrat Global Advisors. “The Fed is re-embarking on a dovish cutting cycle after a long pause. This makes it tricky for traders to position.”

    The long-time stock-market bull sees the S&P 500 losing 5% to 10% in the fall before rebounding to between 6,800 to 7,000 by year-end.

    Eerie Calm

    Lee isn’t alone in his near-term skepticism. Some of Wall Street’s biggest optimists are growing concerned that the eerie calm is sending a contrarian signal in the face of seasonal weakness. The S&P 500 has lost 0.7% on average in September over the past three decades, and it has posted a monthly decline in four of the last five years, according to data compiled by Bloomberg.

    The major market catalysts begin to hit on Friday with the monthly jobs report. This data ended up in the spotlight at the beginning of August, when the Bureau of Labor Statistics marked down nonfarm payrolls for May and June by nearly 260,000. The adjustment set off a tirade by President Donald Trump, who fired the head of the agency and accused her of manipulating the data for political purposes. 

    After that, the BLS will announce its projected revision to the Current Employment Statistics establishment survey on Sept. 9, which may result in further adjustments to expectations for jobs growth.

    Then inflation takes the stage with the consumer price index report arriving on Sept. 11. And on Sept. 17, the Fed will give its policy decision and quarterly interest-rate projections, after which Chair Jerome Powell will hold his press conference. Investors will be looking for any roadmap Powell provides for the trajectory of interest rates. Swaps markets are pricing in roughly 90% odds that the Fed will cut them at this meeting.

    Two days later comes “triple witching,” when a large swath of equity-tied options expire, which should amplify volatility.

    That’s a lot of uncertainty to process. But traders seem oddly unconcerned about this crucial stretch of data and decisions. Hedge funds and large speculators are shorting the Cboe Volatility Index, or VIX, at rates not seen in three years in a bet the calm will last. And jobs day has a forward implied volatility reading of just 85 basis points, indicating the market is underpricing that risk, according to Stuart Kaiser, Citigroup’s head of US equity trading strategy.

    Turbulence Risk

    The problem is, this kind of tranquility and extreme positioning has historically foreshadowed a spike in turbulence. That’s what happened in February, when the S&P 500 peaked and volatility jumped on worries about the Trump administration’s tariff plans, which caught pro traders off-sides after coming into 2025 betting that volatility would stay low. Traders also shorted the VIX at extreme levels in July 2024, before the unwinding of the yen carry trade upended global markets that August.

    The VIX climbed toward 16 on Friday after touching its lowest levels of 2025, but Wall Street’s chief fear gauge still remains 19% below its one-year average.

    Of course, there are fundamental reasons for the S&P 500’s rally. The economy has stayed relatively resilient in the face of Trump’s tariffs, while Corporate America’s profit growth remains strong. That’s left investors the most bullish on US stocks since they peaked in February, with cash levels historically low at 3.9%, according to Bank of America’s latest global fund manager survey.

    But here’s the circular problem: As the S&P 500 climbs higher, investors become increasingly concerned that it is overvalued. The index trades at 22 times analysts’ average earnings forecast for the next 12 months. Since 1990, the market was only more expensive at the height of dot-com bubble and the technology euphoria coming out of the depths of the Covid pandemic in 2020.

    “We’re buyers of big tech,” said Tatyana Bunich, president and founder of Financial 1 Tax. “But those shares are very pricey right now, so we’re holding some cash on the sidelines and waiting for any decent pullback before we add more to that position.” 

    Another well-known bull, Ed Yardeni of eponymous firm Yardeni Research, is questioning whether the Fed will even cut rates in September, which would hit the stock market hard, at least temporarily. His reason? Inflation remains a persistent risk.

    “I expect this stock rally to stall soon,” Yardeni said. “The market is discounting a lot of happy news, so if CPI is hot and there’s a strong jobs report, traders suddenly may conclude rate cuts aren’t necessarily a done deal, which may lead to a brief selloff. But stocks will recover once traders realize the Fed can’t cut rates by much because of a good reason: The economy is still strong.”

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    Jessica Menton, Bloomberg

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  • The Federal Reserve could start resembling the Supreme Court

    As President Donald Trump ramps up pressure on the Federal Reserve, the typically staid, consensus-driven institution could take on some qualities of the more bitterly divided Supreme Court.

    Since returning to the White House, he has demanded that the Fed cut rates and routinely insults Chairman Jerome Powell for not doing so. After teasing that he could fire Powell then backing off, Trump has threatened to fire Fed Governor Lisa Cook if she doesn’t resign.

    For her part, Cook said she won’t be bullied into stepping down and plans to rebut accusations of mortgage fraud from a Trump administration housing official. That’s raised the question of how long she might choose to serve.

    Cook joined the Fed in 2022 after being tapped by President Joe Biden to fill an unexpired term that ended in 2024, then getting reappointed. So she can stay on the Fed board until 2038, though governors typically don’t serve out their entire 14-year terms.

    “However, the Fed has increasingly become a political football,” Ian Katz, managing partner at Capital Alpha Partners, said in a note Wednesday. “Trump has been clear that he wants to put loyalists on the board. As a result, some governors may choose to remain on the board until a president from their same political party is in the White House — making the Fed in that way more like the Supreme Court.”

    Meanwhile, Trump has named Stephen Miran, chair of the White House’s Council of Economic Advisers, to fill a vacancy on the board left by Adriana Kugler, who stepped down before her term was due to expire in January.

    He has backed Trump’s call for lower rates. More notably, Miran also cowrote a paper in 2024 calling for an overhaul of the Fed that reduces its independence.

    That could factor into Cook’s decision on how long she will stay. In his note, Katz observed that “governors in the past have stepped down without concern that the president would nominate a replacement who isn’t a strong believer in Fed independence.”

    Similarly, Powell’s own plans have come under scrutiny. While his term as board chair expires in May, his term as a governor extends to January 2028. 

    Treasury Secretary Scott Bessent has said Powell should step down as governor when his term as chairman ends, saying that has been the tradition. Powell has declined to say what he will do.

    The stakes could go well beyond how much the Fed lowers rates. Analysts at JPMorgan have even warned that Miran’s appointment represents an “existential threat” to the Fed as it signals an intention to amend the Federal Reserve Act and alter the central bank’s authority.

    Split decisions

    It’s not clear if Miran will be reappointed to the Fed board as the White House looks for someone to replace Powell as chairman. But either way, the Fed will have three Trump-appointed governors.

    To be sure, that’s not enough to sway rate decisions on the 12-member Federal Open Market Committee, which is also comprised of regional Fed presidents. But if Trump is able to name a fourth governor, that’s enough to tip the balance on the seven-member board.

    As Axios recently pointed out, a board majority would give Trump appointees power over the Fed’s budgets, staffing, and even selection of regional Fed presidents. Those presidents are appointed by directors of the regional Fed banks, but they are subject to the approval of the board. And in February, the five-year terms for all the bank presidents are scheduled to expire.

    With composition of the Fed in flux, a more divided era may be looming that also resembles the Supreme Court.

    Fed rate decisions are usually unanimous with even one dissenting vote being rare. By contrast, the high court rarely has unanimous votes, while split decisions along ideological lines are common.

    July’s Fed meeting may have been a preview of what’s to come as two Trump-appointed governors voted to lower rates, going against the majority that kept rates steady.

    And although Powell opened the door to a rate cut at the September meeting, that doesn’t guarantee a consensus either as other FOMC members still sounded hawkish, such as Kansas City Fed President Jeffrey Schmid.

    That sets up another FOMC meeting with dissenting votes. In addition, the pace of any subsequent cuts isn’t clear, providing more fodder for debate at the central bank as Trump-appointed officials push for dovish policy.

    Like the chief justice of the Supreme Court, the Fed chair represents just one vote but is also a first among equals who carried outsized influence. So whoever replaces Powell may need to rely on their powers of persuasion on a Fed with more conflicting views.

    Introducing the 2025 Fortune Global 500, the definitive ranking of the biggest companies in the world. Explore this year’s list.

    Jason Ma

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  • U.S. debt is so massive, interest costs alone are now $3 billion a day

    U.S. debt is so massive, interest costs alone are now $3 billion a day

    With U.S. debt now at $35.3 trillion, the cost of paying the interest on all that borrowing has soared recently and now averages out to $3 billion a day, according to Apollo chief economist Torsten Sløk.

    And that includes Saturdays and Sundays, he pointed out in a note on Tuesday.

    The daily interest expense has doubled since 2020 and is up from $2 trillion about two years ago. That’s when the Federal Reserve began its campaign of aggressive rate hikes to rein in inflation.

    In the process, that made servicing U.S. debt more costly as Treasury bonds paid out higher yields. But with the Fed now poised to start cutting rates later this month, the reverse can happen.

    “If the Fed cuts interest rates by 1%-point and the entire yield curve declines by 1%-point, then daily interest expenses will decline from $3 billion per day to $2.5 billion per day,” Sløk estimated.

    Apollo

    Meanwhile, the federal government closes out its fiscal year at the end of this month, and the year-to-date cost of paying interest on U.S. debt was already at $1 trillion months ago.

    But even if Fed rate cuts lighten the burden on interest payments, the next president is expected to worsen budget deficits, adding to the pile of total debt and offsetting some of the benefit of lower rates.

    In fact, a recent analysis from the Penn Wharton Budget Model found that the deficit will expand under either Donald Trump or Kamala Harris.

    But there’s a big difference between the two.

    Under Trump’s tax and spending proposals, primary deficits would increase by $5.8 trillion over the next 10 years on a conventional basis and by $4.1 trillion on a dynamic basis that includes the economic effects of the fiscal policy.

    Under a Harris administration, primary deficits would increase by $1.2 trillion over the next 10 years on a conventional basis and by $2 trillion on a dynamic basis.

    Still, JPMorgan analysts called the outlook unsustainable, regardless of who wins the presidential election, while acknowledging the prospect of bigger deficits with Trump.

    “Irrespective of the election outcome, the trend since the pandemic has been profligate fiscal policy that is absorbing substantial amounts of capital and is incentivizing additional private investment,” the bank said. “At the same time, the en masse retirement of baby boomers is shifting a substantial share of the population from a high-savings period in life to a low-savings period, depressing the supply of capital.”

    Recommended reading:
    In our new special issue, a Wall Street legend gets a radical makeover, a tale of crypto iniquity, misbehaving poultry royalty, and more.
    Read the stories.

    Jason Ma

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  • Who needs Fed rate cuts? Stocks can rally without them, Wall Street bulls say

    Who needs Fed rate cuts? Stocks can rally without them, Wall Street bulls say

    Robust global economic growth may offer equities enough support to resume a record-breaking rally, even if bets on Federal Reserve interest rate cuts this year are completely abandoned.

    After the best week for the S&P 500 Index since November pushed the US stock gauge back toward its record levels of March, investors are faced with a call on whether the weakness seen earlier this month was only a blip or if delayed policy easing will pull the market back down again.

    The answer, some investors say, lies in the market playbook of the 1990s, when equities more than tripled in value despite years of rates that were hovering around current levels. Back then, robust economic growth provided the platform for stocks to shine, and while the global outlook is more uncertain at this point in time, there still exists enough momentum to push the stock market forward.

    “You have to assess why you could be in a scenario where there’s fewer rate cuts this year,” Zehrid Osmani, a Martin Currie fund manager, said in an interview. “If it’s related to an economy being healthier than expected, that could support the rally in equity markets after the typical volatile knee-jerk reactions.”

    Prior to the gains of this past week, equities had been taking a breather throughout April after initial expectations of policy easing kick-started record-breaking rallies in US and European equity markets during the final months of 2023. 

    Traders’ anticipation of at least six 25 basis-point Fed cuts this year at the beginning of January has since been pared back to only one as US inflation remains elevated, prompting concerns that prolonged restrictive policy would weigh on the economy and the earnings potential of companies.

    Rising geopolitical risks and uncertainty over the outcome of global elections have also caused volatility to spike, driving demand for hedges that would offer protection in case the market sees a sharper rout.

    Still, confidence in the global economy has strengthened this year, backed mainly by US growth and recent signs of a rebound in China. Similarly, the International Monetary Fund this month raised its forecast for global economic expansion while a Bloomberg survey shows that euro zone growth is expected to pick up from 2025.

    While recent economic data reflected a sharp downshift in US economic growth last quarter, these figures should be “taken with a grain of salt” as they disguise otherwise resilient demand, said David Mazza, chief executive officer at Roundhill Investments.

    “Net net, I’m still of the belief that we don’t need rate cuts to return to more bullish spirits, but I do think it’s going to be more of a grind,” Mazza said.

    Some short-term pullback is seen as healthy for the S&P 500 after its rally to an all-time high in the first quarter. Between 1991 and 1998, the index retreated as much as 5% on several occasions before staging a new rally but didn’t correct by 10% or more, according to data compiled by Bloomberg.

    One shortcoming of the comparison is that the index now has a far bigger concentration than in the 1990s.

    The current top-five stocks  — Microsoft Corp., Apple Inc., Nvidia Corp., Amazon.com Inc. and Meta Platforms Inc. — are all from the tech sector and make up nearly a quarter of the market capitalization, leaving the index vulnerable to sharper swings.

    Still, there are other factors that bode well for equities.

    An analysis by BMO Capital Markets showed that S&P 500 returns tend to correlate with higher yields. Since 1990, the index has posted average annualized gains of almost 15% when the 10-year Treasury yield was above 6%, compared with a return of 7.7% when the yield was less than 4%, the analysis showed.

    “This makes sense to us, since lower rates can be reflective of sluggish economic growth, and vice versa,” Brian Belski, BMO’s chief investment strategist, wrote in a note to clients.

    In the past week, 10-year Treasury yields have touched a high for the year of 4.74% on the back of limited policy easing prospects.

    Early results from the current reporting season suggest that about 81% of US companies are outperforming expectations even against a backdrop of elevated rates. First-quarter earnings are on track to increase by 4.7% from a year ago, compared with the pre-season estimate of 3.8%, according to data compiled by Bloomberg Intelligence.

    Analysts expect S&P 500 profits to jump 8% in 2024 and 14% in 2025 after subdued growth last year, data compiled by BI show.

    The earnings forecast could be even higher next year in the event of zero rate cuts in 2024, said Andrew Slimmon, portfolio manager at Morgan Stanley Investment Management.

    That “validates upside for equities,” given the market will look ahead to those projections, he told Bloomberg Television earlier this month.

    A booming economy will continue to support stocks even in the absence of rate cuts, said Bank of America Corp. strategist Ohsung Kwon. The biggest danger to this premise will be if the economy slows while inflation remains elevated, he said.

    “If inflation is sticky because of momentum in the economy, that’s not necessarily bad for stocks,” Kwon said. “But stagflation is.”

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    Sagarika Jaisinghani, Alexandra Semenova, Bloomberg

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  • Offices are ‘once in a generation’ buying opportunities, top developer says

    Offices are ‘once in a generation’ buying opportunities, top developer says

    It’s been 30 years since the commercial real estate market was this bad—and that represents a generational entry point for investment, according to a top developer.

    The hybrid-work trend and high interest rates have sent commercial real estate values crashing in major cities, with Morgan Stanley warning earlier this year that office prices could face a 30% drop as a result of lower demand.

    But Don Peebles, chairman and CEO of Peebles Corporation, said his company looks to develop when the market supply is tight and buy when it sees exceptional value.

    “And what we’re seeing here in the commercial office space is essentially once in a generation … opportunities to buy,” he told CNBC on Friday. “Nothing like this has happened since the early 1990s.”

    That’s when a banking crisis resulted in hundreds of lenders shutting down, allowing Peebles to acquire some buildings for just 20 cents on the dollar, he added, as properties held by failed savings and loans were liquidated.

    In fact, the acquisitions Peebles Corp. made in cities like Washington, D.C., back then were the foundation that enabled the company to develop in other parts of the country, the CEO said.

    When it comes to today’s commercial real estate market, Peebles estimated that values for commercial office buildings in San Francisco and Washington, D.C., are down 60%-70%, with Los Angeles down 70% or more.

    But Peebles sees a rebound coming that developers can take advantage of, if they have the stomach for it.

    “Those are global cities that will come back at some point in time,” he said. “So you have to have the appetite to buy, understand how to stabilize the assets based on the current income potential, and then wait.”

    To be sure, he expects the market to adjust to the new hybrid-work environment, with the supply of commercial office space declining as many buildings are “converted or repositioned or demolished.”

    That echoes what other observers have said. Fred Cordova, CEO of real estate consultancy Corion Enterprises, said some properties will recover while others will manage to hang on, or not.

    “And then you have the others that are basically worth nothing—the D class,” he told Fortune in February. “Those just have to be torn down. That’s probably at least 30% of all offices in the country.”

    Like Peebles, other players in commercial real estate also see opportunities. For example, Miami-based mortgage lender KDM Financial launched a $350 million fund earlier this year, with a 20% allocation to nonresidential commercial property.

    “I think that I’m a little contrarian in that I continue to believe in office,” KDM Financial CEO Holly MacDonald-Korth said in an interview with Fortune earlier this year. “We’re currently in a trough … But I don’t think that [in the] long term, offices are going away forever.”

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    Jason Ma

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  • Bank of America CEO Brian Moynihan isn't worried if rates don't come down—for the bank that could even be a 'good thing'

    Bank of America CEO Brian Moynihan isn't worried if rates don't come down—for the bank that could even be a 'good thing'

    While many on Wall Street are pining for a cut to the base rate from the Fed, Bank of America CEO Brian Moynihan seems relatively relaxed about when—or even if—that might happen.

    The banking boss—whose work has been lauded by the likes of Warren Buffett—said his team’s hypothesis is that the Jerome Powell-led Fed will lower rates four times in 2024. That’s one higher than initial indications provided by the Fed’s dot plot (a chart updated quarterly projecting the interest rate’s short-term moves) but two lower than the Wall Street consensus of six cuts.

    And while many on the street might be banking on this scenario, Moynihan isn’t hanging his hat on it. In fact, it would actually be good news for his institution if the Fed didn’t cut rates as early as predicted.

    If the Fed doesn’t cut rates soon “from our company’s perspective, that actually helps a little bit,” Moynihan told CNBC Friday. He explained this is “because [of] the vast amount of short floating rate instruments we have on the asset side and the cash, the $500 billion—almost $600 billion of cash—we put with the Fed overnight in very short Treasuries.”

    Moreover, Moynihan laid out that a delay to cuts could benefit the consumer. Concerns about inflationary pressures are still chiming: geopolitical tensions such as the Russian invasion of Ukraine and the Israel-Hamas war are pushing up oil prices, with shipping reroutes around the Red Sea further adding to wider inflationary pressures.

    In addition, the CPI (consumer price index) figures released last week for December were slightly more stubborn than hoped for. Seasonally adjusted, prices on the index rose 0.3% in December following 0.1% in November. Overall that brought the benchmark to 3.4% over the past 12 months, still well ahead of the Fed’s 2% target.

    But despite these figures Moynihan notes that when the consumer began to show real signs of distress—or the “point of pain” as Bank of America has previously put it—the Fed listened. Moynihan said that when the market “moved heavily” and there was a sense the Fed should stop hiking, they did.

    Combining inflationary fears with this flexibility from the Fed could work well, Moynihan said: “If you mix that all together, in the end of day, rates not coming down actually help us.”

    Back to reality

    On top of that, the longer-term work of the Fed wasn’t to merely get inflation under control but was also to reintroduce consumers to a normal level of rates, Moynihan said.

    Consumers have enjoyed a period of exceedingly low rates since the 2008 financial crisis—the base rate only crept above 2% for a short period of time in 2019 before being axed again to stimulate the economy during the pandemic. From 1971 to 2023 the average base rate is 5.4%, according to Trading Economics, meaning the current base rate of 5.25 to 5.5% is actually fairly average.

    “The reality is that everything’s setting up for them [the Fed] to be able to normalize the rate environment,” Moynihan explained. “Given that you’re seeing consumer spending, which, for the first part of ’22 to ‘23, was up double digits, it’s now down to 4 or 5% growth in the first part of ’24.”

    He added: “That is more consistent with a lower-growth, low-inflation economy. If you think about the customer… if they’re slowing down their purchases, that’s not inflationary.”

    If the balance tips too far, Moynihan said, the Fed will be forced into action: “The consensus view [is] basically planning for a soft landing, which is still a major step down in growth from the third quarter of ’23 to the first quarter of ’24. You’re going to see growth from 4%-plus to about 1%.

    “That’s a major downdraft in growth and so the Fed at some point has to be careful it doesn’t go below that.”

    Not everyone is so convinced by the soft landing prediction. JPMorgan CEO Jamie Dimon admits he is among the more cautious on Wall Street, telling Fox Business last week: “The government has a huge deficit, which will affect the markets. I’m a little skeptical on this Goldilocks scenario. I still think the chances of it not being a soft landing are higher than other people.”

    ‘Goldilocks’ growth refers to a period where data is not too hot to prompt the Fed to tighten rates but not cool enough to be an indication of struggling corporate profits.

    Dimon said a harder recession may be on the cards, but added the U.S. economy could withstand that: “All of us in business have to learn to deal with the ups and downs of the economy. But I do think the crosscurrents are pretty high: the money running out, rates are high, QT [quantitative tightening] hasn’t happened yet.”

    For Moynihan at least, the outlook is rosier. He concluded: “These external factors could hasten [the Fed] to do more faster cuts or cause them to hold on a little bit longer to make sure the inflation doesn’t kick back in.”

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    Eleanor Pringle

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  • Ark’s Cathie Wood Says Passive Investing Sparked The ‘Most Massive Misallocation Of Capital In The History Of Mankind’

    Ark’s Cathie Wood Says Passive Investing Sparked The ‘Most Massive Misallocation Of Capital In The History Of Mankind’

    Topline

    Speaking at the Forbes 30/50 Summit in Abu Dhabi on Monday, famed stock picker Cathie Wood of Ark Invest sharply criticized passive investing and touted disruptive innovation stocks, even as her flagship fund continues to post lackluster returns as shares of top holdings like Tesla and Zoom continue to struggle.

    Key Facts

    The founder and CEO of Ark Invest on Monday criticized the wider shift toward passive investing as “backwards looking,” arguing that “fear” has pushed investors back to “mimicking indexes, which is kind of mindless.”

    “I believe this is the most massive misallocation of capital in the history of mankind,” Wood told Forbes, arguing that her firm’s thesis of investing in disruptive technology is now more important than ever, given today’s uncertainty in markets.

    The famed stock picker emphasized that she still sees “explosive growth opportunities” ahead, but increasingly risk-averse investors have “defaulted to benchmarks” amid concerns over inflation, the Russia-Ukraine conflict and the Federal Reserve’s upcoming rate hikes.

    Wood’s success soared in 2020 when her flagship Ark Innovation fund surged nearly 150%, but performance has since declined, with the fund falling 24% last year and another 37% so far in 2022.

    The Ark Invest CEO remains undeterred by her skeptics: “Betting against innovation long term is a losing proposition,” she said, adding that the “visceral response [from critics] tells me we’re doing something right.”

    While innovation was first “turbocharged” by the problems that arose during the coronavirus crisis in 2020, Wood now sees parallels to today’s market: “I feel we’re back there again, and now with the Russia-Ukraine issues, we have many more problems.”

    Crucial Quote:

    “Innovation solves problems. We now have a lot more problems,” Wood said.

    What To Watch For:

    With energy prices skyrocketing in recent weeks amid the conflict between major exporters Russia and Ukraine, that has created a “huge supply shock,” which is “really going to hurt consumer purchasing power,” Wood told Forbes. “I think the risks of recession have increased dramatically.”

    Surprising Fact:

    Though experts widely agree that rising oil prices could lead to higher inflation in the United States, a by-product of surging energy prices is that they will “only accelerate the push toward electric vehicles and autonomous transportation,” according to Wood. That’s good news for her biggest holding, electric vehicle maker Tesla—with the Ark Innovation fund holding a stake worth more than $1 billion. Wood’s flagship fund also has large positions in virtual healthcare company Teladoc (worth just over $750 million), video streaming platform Roku (worth over $700 million), videoconferencing service Zoom (worth around $650 million) and cryptocurrency exchange Coinbase (worth $600 million).

    Further Reading:

    Dow Falls 600 Points, Oil Briefly Hits $130 Per Barrel, With No End In Sight For Russia’s Invasion Of Ukraine (Forbes)

    ‘Give Us Five Years’: Cathie Wood Defends Struggling Tech Stocks As Flagship Fund Craters (Forbes)

    Cathie Wood Doubles Down On Growth Stocks After Fund Loses A Fifth Of Its Value In 2021 (Forbes)

    Economic Fallout From Russia’s Invasion Will Be ‘Modest’—But Inflation Will Surge Higher, This Expert Predicts (Forbes)

    Sergei Klebnikov, Forbes Staff

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