April 17, 2025

QuickTakes

Trump Making Powell The Fall Guy Again

As we've said before, any day without Trump Tariff Turmoil (TTT) is a good day for financial markets. Despite UnitedHealth Group’s losing roughly a quarter of its value today on poor earnings and higher medical costs, the S&P 500 stayed mostly above yesterday's close all day. Even the Russell 2000 was up today.

While Treasury Secretary Scott Bessent reportedly made progress on a trade deal with Japan today, President Trump badgered Fed Chair Jerome Powell again, as he did during his first term. Unhappy that the ECB cut rates by 25bps today while Powell sits on his hands, Trump threatened Powell's post. Powell won't resign, and Trump doesn't have the power to fire him. Besides, there are 18 other participants on the FOMC who might dissent from any move to lower interest rates pushed by the next Fed chair Trump appoints after Powell's term expires in May 2026.

Despite a broadly good day for stocks, the economic data were less encouraging. Here's more on the data, as well as an update on demand for safe-haven assets:

(1) Manufacturing. April's Philly Fed M-PMI fell 39 points to -26.4, its lowest reading since April 2023. That followed the drop-off in the New York Fed's M-PMI during the month, suggesting that the national ISM M-PMI will be below 50.0 this month (chart).

The index for new orders in the Philly survey fell from 8.7 to -34.2, the worst reading since April 2020 (chart). Shipments were also down steeply, while employment dropped 20 points to 0.2. That suggests less expansion, but no layoffs.

Ominously, the Philly Fed prices-paid index increased from 48.3 to 51.0, the highest since July 2022 (when CPI was climbing toward 9.0%) (chart). Expected goods inflation is likely to keep the Fed on hold with respect to rate cuts, regardless of Trump's tantrum about Powell.

(2) Unemployment. Initial unemployment claims fell 8,000 to 215,000 last week (chart). Continuing claims edged lower for the week prior. The labor market remains in good shape. We expect hiring to slow rapidly, but layoffs may not rise to levels consistent with a recession.

(3) Bonds. Despite all the anxiety about foreigners dumping US Treasuries, foreign official accounts loaded up on T-bills at the fastest rate since the Great Financial Crisis in February (chart). Foreigners did pare their longer-term holdings, though. We believe their shift to shorter-duration bills might reflect an attempt to get ahead of possible currency intervention. Or maybe foreigners are savvy bond investors and want to get out of the way of a steepening of the US yield curve.

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