Fed Watch – 3/7/2025

The below transcript is a literal translation of the podcast audio that has been machine generated by Notta.

Hello, I’m Brian Beaulieu, Chief Economist of ITR Economics, this is March 7th, 2025. Welcome to FedWatch.

It’s been quite a week. We’re not bored, are we? Tariffs are on, tariffs are off, and that has inflation implications all by itself. And the April tariffs have inflation implications. And then the Atlanta Federal Reserve came out and with their GDP now, a number, and said the first quarter GDP looks like it’s going to be negative, and that causes all sorts of consternation. And we can’t seem to get consecutive good days out of the stock market. So it’s been quite a week. So welcome to this few moments of what I hope will be sanity.

In terms of the Atlanta Fed and the GDP now, take it with a grain of salt. They’ve already raised that estimate up last week or the week before it was at minus 3.0 percent. Now they say maybe minus 2.4 percent. What’s driving their concern is the huge surge of imports that happened in January. And it’s not their concern. I shouldn’t say it that way. It’s the numbers are the numbers. Imports rose in January to 25 percent higher than January of 2024 as people tried to beat the administration’s tariffs.

This is just an example of an unintended consequence. It’s going to make the first quarter GDP number look weak. We already anticipated that it was going to be weak, or anyways, relative to the fourth quarter. We’re not really concerned about it. It’s not going to be enough in our opinion to cause the Federal Reserve to lower interest rates. Marketplace has been very stable in terms of rates over the last couple of weeks, so it doesn’t look like it’s going to really move the needle on these interest rates.

I’m not even sure we’re going to see that negative number. We look at the New York Federal Reserve’s weekly economic index, and that’s showing growth in the economy through March 1, 2025. So, I mean, there is that, and our leading indicators continue to rise. For instance, our IGR financial leading indicator rose from December to January. So, it’s going to be a one-off thing. We’re still in that zone, particularly as we run the bend into March here, where you grab these interest rates while they still exist.

Be careful of the headlines. Oh my gosh. They seem to be getting more outlandish. I saw a headline that said pending home sales of lowest on record ever. They’d never been lower. And that was true if you looked at the country as a whole, if you looked at seasonally adjusted data, which was wonky data. If you looked at not seasonally adjusted data, so the pure data, it was normally weak. It wasn’t abnormally weak. It’s true that the three month moving average reached record low, but that’s been true three out of the last four years. So that’s not news, it’s the lack of inventory. But my gosh, you’d think the sky was falling with the way the headlines were portraying it. And the West and the Northeast, by the way, did better than the rest of the country. Northeast small market doesn’t really matter.

But we’re still looking at the economy slowly getting better as we trudge through 2025. And trudge is a good word for it. But the January data came out for total manufacturing new orders, came out for capital goods new orders, excluding aircraft. And both of those showed signs of improvement, signs of life. Consumer is in a funk right now, at least according to the January data for automobile retail sales. They don’t know what’s going on. And neither do a lot of businesses. And you may be seeing that in your own marketplace. Business leaders are going, what? What just happened? And how do I plan for the future? We’ve all had, I think, probably that CEO that comes in or a new department leader that comes in and decides to shake everything up on day one. And it just causes all sorts of confusion. Things will settle down like they always have when we’ve gotten in that new CEO or that new form and whatever it is. And that’s what’s going to happen in 2025. Things will calm down. We’ll get some rhythm going.

Sidebar, by the way, part of that rhythm is the reciprocal tariffs concept that the administration plans to kick off in April. I understand that while normal tariffs give you a one-off impact on inflation, this concept of reciprocal tariffs, if they retaliate, then we’re going to retaliate more in kind, perpetuates the price cycle and gets you more and more inflation as you go down the road. So if you see that happen, understand that it’s another harbinger of more inflation and therefore more interest rate rise down the road.

The 10-year government bond yields stayed relatively flat at 4.24, 4.28% are running in that range and the 30-year fixed rate mortgage also stayed relatively flat from last week at 6.63%. Those are attractive rates, whether you’re talking about the corporate. number, which would be the U.S. government bond yield number, they tend to track with that, or mortgage rates. This is a good time to be jumping in on those and not going to get much better because, again, we don’t see a major problem with the economy. We see it getting stronger, and go, go, go is our message to you.

Please join me for the March 20th virtual summit. I’ve been doing a lot of work on what the 30s will look like on a global basis. I’m excited about that research, and I’m looking forward to sharing it with you. So keep your head down, ignore the noise, control what you can control, make sure your supply chains are locked down in good shape, and find substitutes where you can, where you can, figure out how you’re going to pass through the tariffs when they come back. If they come back, who knows? We’ll see. Thanks very much for listening. We’ll talk to you later.