Boy, that Jerome Powell is in a tight spot. U.S. inflation is on the rise, growth is weakening and the Trump administration is all but demanding rate cuts that the Fed chair may not be able to deliver. This is investment reporter Tim Shufelt, are we’re discussing today’s U.S. rate announcement and what it means for an unsettled U.S. stock market. We’ll also look at the reawakening of European stocks, plus the final decision made by one of the world’s greatest experts in decision making.
Federal Reserve Chairman Jerome Powell delivers remarks at a news conference following a Federal Open Market Committee meeting at the Federal Reserve on March 19, 2025 in Washington, DC.Kevin Dietsch/Getty Images
THE FED
Powell does little to lift policy fog
Donald Trump could use a rate cut or two right about now. That would surely perk up the flagging U.S. stock market, which has begun to reflect deep concerns about the likelihood of a U.S. recession. The problem, of course, is that much of Trump’s agenda is inflationary, which is keeping the Fed from delivering the rate cuts Trump wants.
On Wednesday, Jerome Powell held the federal funds rate steady, citing rising price pressures and deteriorating economic readings. The Fed now believes U.S. unemployment will hit 4.4 per cent by the end of this year, up from the current 4.1 per cent, and that inflation, as measured by the Personal Consumption Expenditures price index, could rise to 2.7 per cent from 2.5 per cent. On both counts, the forces are pointing in the wrong direction, raising the spectre of stagflation.
The culprit in this sudden turn of U.S. economic fortunes? “A good part of it is coming from tariffs,” Powell said during a press conference Wednesday.
This puts the Fed on a collision course with Trump. A couple of months ago, Trump said he would “demand that interest rates drop immediately.” And just a couple weeks ago, Treasury Secretary Scott Bessent declared: “We’re set on bringing interest rates down.” But the Fed can’t very well take a dovish turn when inflation is on the rise.
“Further loosening is unlikely and we continue to think that Fed officials are underestimating the extent to which tariffs are likely to push up inflation,” wrote Stephen Brown, deputy chief North America economist at Capital Economics.
What does this mean for the stock market? It probably means that investors are on their own and should not hold out hope for rate cuts. Curiously, there was some relief apparent in Wednesday trading after Powell spoke, presumably because the Fed’s projection of two rate cuts this year remained unchanged.
But there wasn’t much else for stock market bulls to hang their hats on. The Fed, like the rest of us, can’t see through the policy fog that shrouds the global economy.
Traders work in front of a board displaying the chart of Germany's share index DAX at the stock exchange in Frankfurt am Main, western Germany.TORSTEN SILZ/AFP/Getty Images
Global stocks
Making European stocks great again
It has been easy for investors to ignore Europe for a good two decades now. Investment returns from European benchmarks have been miniscule over that time, matching the continent’s unimpressive economic profile, with slow growth, low productivity, poor demographics, and a lack of business investment. Things went from bad to worse over the past few years, as investor preferences tilted heavily toward technology and growth stocks, of which Europe has very little. It was a grim set-up, right up until Donald Trump stormed back into the White House.
For all his faults, Trump sure has a way of shocking the complacency out of entire economies. With the free trade paradigm at the heart of the global economy up in the air, and the future of the NATO military alliance in doubt, policy makers have been jolted into action. On Tuesday, Germany’s parliament approved a colossal stimulus package that could see more than €1-trillion unleashed for defence and infrastructure spending.
Suddenly, signs of revival are everywhere in European markets. Germany’s primary blue-chip benchmark is outperforming the S&P 500 by about 20 percentage points so far this year. The MSCI Europe Index is up by 15 per cent over the same time. It’s all part of a “massive rotation” out of U.S. equities and into overseas markets as European economic indicators improve, said Martin Roberge, portfolio strategist at Canaccord Genuity. “This ‘whatever it takes’ moment should lead to a further drop in policy uncertainty in Europe, while in the U.S. lingering risks of reciprocal tariffs keep anxiety elevated.”
Diversions
Daniel Kahneman’s final decision
Princeton psychologist Daniel Kahneman was famous primarily for two things. First, for his blockbuster book, Thinking, Fast and Slow, which examined the intuitions and biases that drive how people make decisions. And second, for his Nobel Prize in economics in 2002, shared with Amos Tversky, for their groundbreaking work in behavioural economics.
Their framework, called prospect theory, suggested that people feel the pain of a loss much more acutely than the satisfaction from an equivalent gain. Investors may recognize this pattern from their own experiences of wins and losses in the stock market.
A year ago, Kahneman decided to end his life at an assisted-suicide facility in Switzerland. It’s a decision that his friends and family are still struggling to come to terms with, Jason Zweig writes in the Wall Street Journal: “His death raises profound questions: How did the world’s leading authority on decision-making make the ultimate decision? How closely did he follow his own precepts on how to make good choices? How does his decision fit into the growing debate over the downsides of extreme longevity? How much control do we, and should we, have over our own death?”
The essentials
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Globe Investor Highlights
Jennifer Dowty interviews Sadiq Adatia, chief investment officer at BMO Global Asset Management, for his latest predictions on markets and portfolio advice
Global asset managers are wary of jumping back into Wall Street’s Big Tech behemoths
The EU has hatched a plan to lure investors back to Europe
What’s up next
With consumer and business confidence skidding in the U.S. amid all the tariff uncertainty, the next shoe to drop could be the labour market. Thursday’s U.S. jobless claims will be closely watched for any signs of weakness.
On the domestic front, Canadian retail sales for January will be an interesting data point to monitor given all the threats that arose during the month from a certain person south of the border. The ‘Buy Canadian’ movement was picking up traction at the start of the year, but overall, economists are expecting to see a pullback in monthly spending.
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