Comments based on information available as of 7:45am CT on 6/27/2025

Growth: Slowing, Not Stopping

First quarter gross domestic product estimates were revised down as consumers spent less on services than originally thought. However, inflation-adjusted disposable personal income rose a healthy 2.5% annualized and final sales to private domestic purchasers rose a modest 1.9%. Tariffs, front-loading, and inventory-building may have distorted the first quarter growth numbers, but the underlying trend of private incomes and spending, while slowing, is still chugging along. Growth may be slowing, but so far it is not showing signs of stopping.

Inflation: Maybe Not So Much?

Originally, the Fed’s message was that tariffs would cause prices to increase gradually while growth would slow more slowly. The script has been flipped and so far it looks like growth is slowing faster than inflation is rising. Tariffs are taxes, but if those taxes fall mostly on sellers or suppliers, then the effect on growth will be more pronounced than the effect on consumer prices. So far, that’s how things are playing out. In November, Chair Powell said the “We don’t guess, we don’t speculate, and we don’t assume” what future government policy choices will be. Yet, they’re not only guessing, speculating, and assuming what those policies will be, they’re also guessing, speculating, and assuming what the effects will be on the labor market and inflation.

Policy: Stalking Horse Or Backseat Driver?

President Trump may announce his pick for the next Fed Chair later this year, well ahead of when Chair Powell’s term expires in May 2026. Is that a problem? Probably not. There are plenty of backseat drivers and Monday morning quarterbacks out there. What matters for policy is who is on the committee when decisions are made. Even if there is a stalking horse Chair, that person doesn’t vote until he or she is actually in the chair. The Chair isn’t a dictator, though the last time the Chair was in the minority of a Fed decision was in 1939. If we have to get used to more dissents, so be it. It’s still majority rule.

Looking Ahead: New Highs Were Old Hat

Historically, new highs in the market lead to new highs. It’s understandable that investors may be wondering whether elevated valuations are setting us up for disappointment instead. Valuations are a horrible market timing tool. It’s probably best to just use high valuations as a reason to lower return expectations, not necessarily to expect negative returns.