Fed Watch – 4/18/2025

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

Hello, welcome to this edition of FedWatch. Today is April 18th, 2025. It’s Friday and it’s been another week of turmoil and guessing what’s going to go on next.

Here’s where we are standing right now. I know there’s consternation about what GDP is going to look like in the first quarter of 2025. I’m not really worried about that. We have data through March now for U.S. Industrial Production and that actually was gaining some upside momentum going through March. Retail sales for March came in 4.2% ahead of the year level, so that’s good. I mean, it’s not really anything to worry about. Housing starts, housing permits were both below year-ago levels, but that’s no surprise.

Our concern is more with the second quarter of 2025. Back in COVID, we’ve followed weekly data as much as we could and we’re back to doing that. We’re looking at red book data, which was holding up in terms of, that’s retail sales data on a weekly basis, that was holding up through the first couple of weeks of April, which is a good sign. We followed the Dallas Fed’s weekly economic data and that is trending in a steady way. But there’s recent Fed data, weekly data coming out of New York and Philadelphia, that’s showing some fresh signs of weakness and that could tie into some weak numbers in Q2 2025 and that begs the question, what’s the Federal Reserve, what would they be likely to do that? What can they do about that?

Chairman Powell was quoted as saying that the Federal Reserve has been put in a position that they haven’t had to contend with in over half a century. And he’s talking about stagflation with the inflationary pressures. And he was pretty clear about they expect that tariffs are going to create inflationary pressures. But they’re a heightened concern about a slowdown in activity in 2025.

Please note that a slowdown in activity is not the ‘R’ award. If there if there was an actual sustained R recession, it would be like two consecutive quarters of decline in GDP or industrial activity. Right now it looks to us like we we should be concerned about the second quarter. But that doesn’t translate into the third quarter necessarily. The uncertainty index right now is off the charts and that also ties in with uncertainty at the Federal Reserve that they’re not going to have a clear cut mandate when we’re in this stagflation situation.

Our expectations are you know they’re saying they could go up, they could go down, some of them are saying rates could go down two or three times, some of them are saying they’re just as likely to go up. We can’t count on these interest rates coming down. What we can count on though is higher commodity prices, that we’ve already seen that. We’re going to see higher input prices for our supply chains. We’re going to see companies scrambling to make sure their supply chains are fixed. By that I mean not rigid but soluble. All of which doesn’t equate in Federal Reserve speak to we have to lower interest rates. Don’t assume that they are going to be going any lower.

Something else I wanted to bring to your attention, be careful or be mindful, watchful. The Supreme Court’s taking a case having to do with the administration firing people for non-performance reasons. It’s called the Humphrey’s Executor law is what it’s all about and while it doesn’t directly speak to the Federal Reserve it would weaken the Federal Reserve’s independence if the Supreme Court decides the President can fire anybody he wants for whatever reason he wants. That would mean Chairman Powell and anybody else could be replaced on the board at the President’s discretion and that would destroy the independence that we’ve had between setting interest rate policy inflation policy and fiscal policy. There’s a reason that those two have been separated. out. So this could be a landmark piece of legislation and that would have a direct bearing on what’s going to be going on with interest rates and what’s going to be going on with inflation.

We’ll track that. I know it’s not even on the docket yet. Right now though, tend to business, there is demand out there and certainty is just off the charts, but you know what you need to do to run your businesses. Thanks for watching this edition of FedWatch. We’ll see you next week.