Rates Steady and the Babylonian Empire

For the week ended 5/10/2025.

Pop Quiz: How Long Would It Take to Spend $1 Trillion at $1 Million a Day?

Answer at the bottom. No Googling.

For a welcome change of pace, markets last week focused less on geopolitical drama and more on the Federal Reserve. At the conclusion of the FOMC’s policy meeting, the Fed unanimously decided to keep the baseline interest rate steady at 4.5%. In the ongoing high-wire act between taming inflation and avoiding recession, Powell & Co. are now contending with a third obstacle – tariffs. Because apparently, monetary policy wasn’t already complicated enough.

Here’s the dilemma: tariffs tend to be inflationary in the short run (higher costs for imported goods) but recessionary over time (reduced demand from higher prices). So, they basically check both of the Fed’s “things that keep us up at night” boxes.

Adding to the complexity is the Fed’s dual mandate: stable prices and full employment. Sounds nice in theory, until the two start working against each other. At this point, it's safe to say rate cuts are off the table unless the unemployment rate starts climbing meaningfully. In the meantime, inflation remains squarely in the Fed’s crosshairs, even if that means the economy might slow further.

Just a few months ago, Wall Street was expecting three to five rate cuts in 2025. But at last week’s press conference, Chairman Powell uttered the phrase “wait and see” eleven times. (Yes, someone counted.) In Fed-speak, that’s basically code for “we have no idea either.”

Markets Recap:

Domestic stocks dipped a modest 0.4% last week, while bonds slid 0.2%. On the other hand, commodities surged 1.4%, and foreign stocks eked out a small 0.1% gain. For the year, foreign stocks are in pole position with an 11.1% gain, followed by commodities at +5.6%. Meanwhile, domestic equities remain in the red, down 3.3% year-to-date and still searching for a lifeline.

Eyes on the Horizon:

This week’s headliners? Tuesday brings the latest CPI and Core CPI data, followed by Retail Sales and Core Retail on Thursday. Economists are expecting data tame enough to suggest inflation is under control, but not weak enough to spark recession fears. In other words, just boring enough to keep the markets content. Maybe.

And now, back to that trillion-dollar question:

If you spent $1 million every single day, it would take you 2,740 years to burn through $1 trillion. To put that in perspective, you could’ve started this spending spree during the height of the Babylonian Empire and still not be done.

Too bad Congress didn’t think of that when they ran the federal debt up to $36.1 trillion and counting. But hey, enjoy your coffee this morning – just try not to spit it out doing the math.

Interesting data point of the week.

Source: Visual Capitalist

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