Former Kansas City Fed Pres. Esther George: I'd be surprised if inflation moves down much at all
Former Kansas City Fed President Esther George joins 'Squawk Box' to discuss the state of the economy, April PCE inflation data, impact on the Fed's interest rate decision, and more.
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Miami Herald
12 hours ago
- Miami Herald
Veteran fund manager issues dire stock market warning
The stock market loves climbing a wall of worry. We've certainly seen that over the past two months. Despite worry over mounting US debt and tariff impacts on inflation and the economy, the S&P 500 has rallied 20%. Technology stocks have done even better. The Nasdaq Composite, home to most tech leaders, is up 27%. The rally since President Trump paused most reciprocal tariffs announced on April 2, so-called "Liberation Day," for 90 days has been impressive. However, there's good reason for concern, especially since the S&P 500 is challenging all-time highs and its valuation is arguably becoming frothy again. Related: Bank of America unveils surprising Fed interest rate forecast for 2026 The risk that stocks could lose some of their luster after their rally has caught the attention of many Wall Street veterans, including long-time hedge fund manager Doug Kass. Kass has been navigating the markets since the 1970s, including as research director for Leon Cooperman's Omega Advisors, and his experience through good and bad times helped him correctly predict the sell-off earlier this year and the market bottom in April. This week, Kass updated his stock market outlook, including a surprisingly long list of red flags for why investors should be cautious. The best set-up for tantalizing returns is a market that's oversold enough to have reset forward price-to-earnings ratios to levels near the lower end of their historical averages. In February, when stocks were notching all-time highs right before the tariff-fueled reckoning, the S&P 500's P/E ratio eclipsed 22, and most sentiment measures were flashing overbought. Related: Legendary fund manager sends blunt 3-word message on economy The sell-off through early April erased much of that frothiness, driving the S&P 500's P/E ratio to 19 and below five-year averages of 19.9-not bargain-basement priced, but low enough to help catapult stocks from severely oversold readings. As a reminder, CNN's Fear & Greed indicator was at "Extreme Fear," and bearishness by most measures was sky high in the days after the April 2 tariff announcement. Now that the stock market is back near its highs, sentiment has turned optimistic again, with CNN's measure flashing "Greed." Because earnings forecasts haven't materially increased, the S&P 500's P/E ratio is north of 21-hardly cheap. "Valuation multiples expanded in a relief rally from mid-April to now and the S&P 500 now trades at 21x forward earnings, 35% above average," wrote Bank of America analysts to clients on June 14. "The index looks statistically expensive relative to its own history on all 20 of the valuation metrics we track." Doug Kass has tracked the market successfully through 1970s skyrocketing inflation, 1980s double-digit interest rates, the Savings & Loan crisis, the Internet boom and bust, the Great Recession, a pandemic, and the bear market of 2022. He's seen a lot over his nearly 50-year career, making his stock market warning now worth paying attention to. "Equities haven't been this unattractive since late 2021," wrote Kass on TheStreet Pro. "There is little room for disappointment. More Economic Analysis: Hedge-fund manager sees U.S. becoming GreeceA critical industry is slamming the economyReports may show whether the economy is toughing out the tariffs The concern that stocks have priced in much of the good news likely to come from ongoing trade negotiations may have merit, given this week's China trade deal news left tariffs at current levels near 55%. As the impact of tariffs flows through supply chains, inflation may start rising within months, crimping household and business spending. Unfortunately, that's not the only risk on Kass's mind. The money manager provided a long list of threats that could derail stocks' rally. It's a long list, so you may want to refill your beverage. He writes: Political and geopolitical polarization and competition will probably translate into less political centrism and a reduced concern for deficits, creating structural uncertainties, limited fiscal discipline, and imprudence around the globe ... and for the possibility of bond markets to "disanchor."The cracks in the foundation of the bull market are multiple and are deepening, but they are being ignored (as market structure changes have led to price momentum (fear of missing out) being favored over value and common sense).With the S&P 500 Index at around 6000, the downside risk dwarfs the upside reward for equities - in a ratio of about 5-1 (negative).Valuations (a 22-times forward Price Earnings Ratio) and (consensus) expectations for economic and corporate profit growth are all dismissed are JPMorgan CEO Jamie Dimon's and others' dour comments on complacency and a view that the corporate credit market is "ridiculously over-stretched."Look for the soft data (see last week's weak ISM and climb in jobless claims) to move into (and weaken) the hard data led by a slowing housing market likely to provide ample near-term evidence of the exposure and vulnerability of the middle trend-line economic growth (housing will lead us lower) coupled with sticky inflation lie ahead ("slugflation") - uncomfortable for a Federal Reserve which has to make increasingly more difficult profit growth (rising +13% in 1Q2025) will markedly decelerate in this year's second equity risk premium is at a two-decade low - typically consistent with a slide in S&P Dividend Yield is at a near record low of 1.27% - and the spread between the dividend yield and the 10-year U.S. Treasury note yield has rarely been as wide. With so many possible adverse outcomes, my baseline expectation is for seven lean months ahead over the balance of 2025. Kass' is clearly nervous that any single or combination of these headwinds could cause stocks to give back some gains. What should investors do? Over time, the stock market goes up and to the right, so those with long-term horizons are often best off sticking to their plan, recognizing that there will be bumps and bruises along the way. However, investors with a shorter-term horizon may want to rein in some risk, pocket some profit, and increase 'dry powder' to take advantage of any weakness if Kass's warning proves prescient. Related: Veteran fund manager revamps stock market forecast The Arena Media Brands, LLC THESTREET is a registered trademark of TheStreet, Inc.
Miami Herald
14 hours ago
- Miami Herald
Federal Reserve, White House interest-rate cut battle heats up
The post-pandemic inflation that's been squeezing your grocery and credit-card bills for years takes center stage in Washington in just days. That's when the Federal Reserve Board meets to consider interest rates, a gathering that the White House has been – to put it mildly – strongly trying to influence. Don't miss the move: Subscribe to TheStreet's free daily newsletter The Trump Administration wants the Fed to slash rates immediately by almost half after May inflation and job rates basically held steady despite fidgety action earlier this year. Trump and others say this is to keep the nation from sliding into a recession, or worse, stagflation. Related: CPI inflation report resets interest rate cut bets Many economists say the central bank can't ignore the potential impact to inflation from zigzagging U.S. tariffs in the next three to six months. Energy and oil prices are now considerations due to the latest Middle East conflict. Federal Reserve Board Chair Jerome Powell has been the target of President Trump's usual brash manner towards opponents. The president has taunted the chairman with a string of nasty names and other insults. The most recent invective: "Numbskull.'' Trump's ratcheting rhetoric includes allusions to installing a "shadow" Fed president until Powell leaves on or before his term expires in May 2026. Powell has been mum about his gig and the president's efforts to squeeze him out of hisThe Federal Reserve's dual mandate is to set monetary policy that keeps inflation and unemployment low at the same time. This is often at odds because high interest rates lower inflation but cut jobs. Lower interest rates decrease unemployment rates but increase inflation. The central bank's Federal Open Market Committee, meeting June 17-18, controls the Federal Funds Rate that banks charge each other overnight to borrow money. When that rate goes up, so do interest rates – the cost of borrowing money for us all. This impacts Treasury bond yields, crucial to determining how much banks charge for mortgage rates. The post-pandemic housing market is stalled again this spring because of higher mortgage rates, a crunch hurting first-time or lower-income buyers while many sellers, especially older Americans looking to downsize, are stuck in their nests. The current Federal Funds Rate is between 4.25% and 4.50%. Trump said he wants a cut of 2.0%, up from his earlier demand of 1.0 %, after the May Jobs and CPI reports were cooler than expected. This would add $600 billion back in the pockets of Americans, the president claimed. But not everybody's buying it. Related: Fed official revamps interest-rate cut forecast for rest of this year Economists and market analysts say the Federal Reserve is being prudent because the full depth and breadth of Trump's tariffs and trade deals' economic impact are uncertain. Raphael W. Bostic, president and chief executive officer of the Federal Reserve Bank of Atlanta, said in a recent conference call with reporters that he's "very cautious about jumping to cuts at this point." Bank of America analysts, in a note to clients, said it was unlikely there would be additional cuts to the Federal Funds Rate in 2025 but added that 2026 looked promising. While market watchers expect the Federal Reserve to cut interest rates by 1% next year, the White House is maintaining that the cuts must come now. Related: Bank of America unveils surprising Fed interest rate forecast for 2026 Trump said a drop in interest rates, coupled with his "One Big Beautiful Bill" being chewed over by Congress, would boost the tepid economy. The lagging housing market would get an especially big boost. American consumers have embraced the tariffs with China, Mexico, Canada, and the trade wars, the Trump administration says. Not so fast, say economists, who maintain that tariff-driven lags could start to drag the prices of goods and services in 30 to 90 days as manufacturers and retailers pass the costs onto their customers. Powell is one of the few government officials the president can't fire or 'DOGE' from a job. Trump compensates by slamming Powell with derogatory nicknames like "Mr. Too Late" and a "Major Loser" for the Fed's cautious approach to a rate cut. The president is so ticked that he's threatened to install a "shadow president" to ride out Powell's remaining days. By nominating a new Fed head before Powell's term expires, the expectation is that Powell will resign. Multiple names have bubbled up for that role, with the latest being Treasury Secretary Scott Bessent who's actually been on the same pipe as Trump stoking for a Powell exit. There's no comment from the Fed on the FOMC meeting or Powell on the president. Expectations are interest rates will remain the same in June after the FOMC meets. Central banks in China, Switzerland, the U.K., Japan and Brazil are also expected to decide on interest rates in the coming days. Related: Fed Chair hit with savage message on interest rates The Arena Media Brands, LLC THESTREET is a registered trademark of TheStreet, Inc.
Yahoo
15 hours ago
- Yahoo
Why the Fed and ECB are no longer on the same page
The Federal Reserve on Wednesday is widely expected to hold interest rates steady for the fourth meeting in a row, while the European Central Bank just lowered its rates for the eighth time in a year. The divide has caught the attention of President Trump, who has seized on the gap as he pushes the Fed to lower rates by a full percentage point. He did so again last week as he called central bank chairman Jerome Powell a "numbskull" who has refused to ease policy despite Europe dropping its rates "10 times." "We've done none," Trump added. "Nobody understands.' The two central banks in the US and Europe have diverged as their respective economies move in different directions, impacted not just by tariffs from the Trump administration but other domestic factors. Earlier this month the ECB cut its benchmark interest rate to 2% from 2.25%, the lowest level since early 2023, leaving borrowing costs now more than 2 percentage points lower in Europe than the US. It also signaled it is nearing the end of its rate-cutting cycle. The Fed last cut rates in December 2024, reaching a target range of 4.25%-4.5%, and has yet to cut rates during Trump's second term in office. Read more: How the Fed rate decision affects your bank accounts, loans, credit cards, and investments 'The president is going to keep getting more and more upset about it,' said Wilmington Trust chief economist Luke Tilley. Perhaps the major difference is how the two central banks are viewing inflation. Policymakers in the US hiked their inflation forecasts in the spring as they worried about the ultimate impact of Trump's tariffs on prices — even though the higher expected prices haven't arrived yet. The Fed will offer new forecasts this coming week. In Europe, by contrast, the ECB has been cutting its inflation forecasts and now expects inflation to fall to its target of 2% this year before falling further to 1.6% next year. 'The European Union is cutting because inflation is low and there's a threat to growth," Tilley said. "I say the Fed either should be or will be cutting because inflation is low and there's a threat to growth, but they're holding on a little bit here.' Jeffrey Roach, chief economist for LPL Financial, said the Fed is more likely to remain in 'wait-and-see' mode than the ECB because US consumers are on stronger footing than their European counterparts, giving the Fed the luxury of time before US policymakers have to act. "Relatively stronger consumer demand means US inflation is running a bit hotter than the Euro area," said Roach. "As growth prospects look weaker in the Euro area, the ECB is becoming more dovish as they respond to economic pressures in Europe." ECB president Christine Lagarde has warned that trade tensions could lead to greater volatility and risk aversion in financial markets, which could weigh on demand in Europe and would also act to lower inflation. Most exports to the US face a 10% tariff, and levies could rise to 50% if the European Union and the US don't reach a deal by the White House's July 9 deadline. A fragmentation of global supply chains could also raise inflation by pushing up import prices and adding to capacity constraints in the domestic economy, Lagarde added. Unlike the US, Europe's central bank does not have a dual mandate. The ECB only targets inflation, while the Fed has to maintain both stable prices and maximum employment. Fed Chair Jerome Powell and many of his colleagues this year have repeatedly urged caution and patience on rates, saying they expect Trump's tariffs to push inflation higher and drag down growth, putting the Fed in a challenging spot. But a divide is emerging within the Fed about whether to hold rates steady for some time or get more comfortable about cuts later this year as officials try to determine whether any inflation coming from Trump's tariffs will prove to be longer-lasting. Some policymakers are arguing for "looking through" the impact of the duties as temporary, a stance that would leave the door open for cuts. Many on the rate-setting committee, however, believe there is a risk that inflation from tariffs could become more persistent. 'If we had a good Fed chairman, you would lower rates,' Trump told reporters earlier this week. 'And you know what? If inflation happened in a year from now or two years, let them raise rates.' The president stressed that the US has a lot of debt coming due and lower rates would mean lower interest expense for the US. 'If this guy would lower rates, we get a lower interest rate. It's unbelievable,' said Trump. 'And he's worried about inflation.' The World Bank warned this week that heightened trade tensions and policy uncertainty are expected to drive global growth down to 2.3 percent this year, nearly half a percentage point lower than the rate that had been expected at the start of the year and the slowest pace since 2008 outside of outright global recessions. The international body said turmoil has resulted in growth forecasts being cut in nearly 70% of all economies — across all regions and income groups. However, a global recession is not expected. Dustin Reid, chief strategist for fixed income at Mackenzie Investments, which has $150 billion in assets under management, said he thinks "the ECB may need to go a bit lower" with its rates. "Tariffs are going to be quite challenging for the European Union,' said Reid. On the Fed side, Reid thinks September is in play for a Fed rate cut. 'I do think the labor market data in the US is cracking a bit,' said Reid, adding that he 'would not be surprised" if Powell this coming week keeps "a little bit of an open door [to] at least keep July in play.' Click here for in-depth analysis of the latest stock market news and events moving stock prices
