Morning Bid: Fed soothes as Trump seethes

FILE PHOTO: An eagle tops the U.S. Federal Reserve building’s facade in Washington · Reuters

Thu, Mar 20, 2025, 7:03 AM 8 min read

What matters in U.S. and global markets today

U.S. stocks found encouragement in the Federal Reserve’s recent actions, particularly Chair Jerome Powell’s optimistic view on the inflationary impact of rising trade tariffs and the announcement of a significant slowdown in the Fed’s balance sheet reduction.

Today’s Market Minute

• The Federal Reserve has indicated no urgency to cut U.S. interest rates, prompting President Donald Trump to demand the central bank “do the right thing” via social media.
• Trump met with top oil executives to discuss boosting domestic energy production amid falling crude prices and a looming global trade war.
• Trump is set to sign an executive order to shut down the Department of Education, fulfilling a campaign promise.
• Eli Lilly has launched its diabetes and weight-loss drug Mounjaro in India, addressing rising obesity and diabetes rates.
• European Union leaders plan to enhance the bloc’s competitiveness and military capabilities in response to U.S. tariffs and economic challenges.

Central banks on parade

Following global central bank meetings, focus shifts to April 2’s planned tariff hikes. Wall Street stock futures maintained Wednesday’s gains, and Treasury yields declined due to the slowdown in quantitative tightening and the Fed’s forecast for two rate cuts this year. The probability of a third cut has risen to 50%. The dollar strengthened against most currencies despite lower U.S. yields, possibly due to traders preparing for next month’s tariff hikes. This may also reflect profit-taking on the euro and euro zone stocks after Germany’s recent fiscal shock.

The Fed’s actions were largely underwhelming, with growth forecasts cut and inflation outlooks rising. The balance sheet maneuver fell short of the full pause expected by many in the market. President Trump’s post-meeting criticism of the Fed, calling for rate cuts as tariffs ease, marks a return to his previous stance. Treasury Secretary Scott Bessent has attempted to reassure about the Fed’s independence, but Trump’s recent firing of two Democratic commissioners at the Federal Trade Commission raises concerns about agency independence.

Wall Street jolt may jog jobless rate

Economists worry that this year’s stock market decline may delay retirements, impacting the U.S. unemployment rate. A record 4.18 million U.S. workers reached retirement age in 2025, with many lacking sufficient savings. The stock market shakeout may force some retirees to remain in the workforce. Michael Reid of RBC Capital Markets suggests that a sustained stock market retreat could increase unemployment forecasts as some delay retirement. High retirement rates suppress the labor force participation rate and jobless rate calculations. Delays in retirement may increase the available labor force and potentially raise the unemployment rate.

PART-TIME AND PARTICIPATION

The employment picture is complicated by new immigration limits and rising concern over worker shortages. The labor force participation rate has declined, reaching a two-year low of 62.4% in February. The unemployment rate remains low at 4.1%, but a broader measure including those who have given up searching for work and part-time workers reached 8% last month—the highest since 2021. Economic anxiety is rising, influenced by government upheavals and stock market volatility. Older workers are particularly concerned about stopping work due to these factors.

Chart of the day

Return to ZIRP?

Most central banks claim monetary policy norms have changed since the pandemic, making a return to zero interest rate policies unlikely. However, the Swiss National Bank cut its main policy rates to 0.25% and has not ruled out negative interest rates.

Today’s events to watch

• Bank of England policy decision
• U.S. weekly jobless claims, Q4 current account, March Philadelphia Federal Reserve business survey, February existing home sales; Canada February producer prices
• Bank of Canada Governor Tiff Macklem speaks; European Central Bank policymakers Philip Lane, Klaas Knot, and Robert Holzmann speak
• European Union summit in Brussels
• U.S. corporate earnings: FedEx, Micron Technology, Nike, Accenture, Lennar, Darden Restaurants, Jabil, Factset
• U.S. Treasury sells 10-year inflation-protected securities