Beyond the Fed | Jack & Max on FOMC, GDP, Earnings & Tariffs

Episode Summary

Executive Summary: The discussion centered on the Fed’s hawkish hold, tariff uncertainty, and how AI-driven capital spending is cushioning the U.S. economy as consumer demand cools. The hosts argued tariffs may cause mostly one-time price shocks rather than sustained inflation, while earnings from Microsoft, Meta, banks, and other firms suggest the market impact is uneven: AI and financials look resilient, manufacturing bears the brunt.

Main Topics: Federal Reserve Holds Rates but Sounds Slightly Hawkish (Priority: 5/5): Powell kept rates unchanged, citing still-above-target inflation and a solid labor market. The hosts emphasized that the meeting was more hawkish than the market expected, especially given dissent from Bowman and Waller. Tariffs, Inflation Pass-Through, and Pricing Behavior (Priority: 5/5): The conversation examined whether tariffs will meaningfully raise inflation. Powell’s view was that firms are absorbing most costs for now, but companies may eventually pass them through, potentially using tariffs as cover for broader price hikes. AI CapEx as a Growth Engine (Priority: 5/5): The hosts argued that AI-related capital spending is increasingly supporting GDP and offsetting softer consumer demand. Microsoft and Meta were cited as evidence that AI investment is reshaping the economy. GDP Quality vs. Headline Growth (Priority: 4/5): Although Q2 GDP printed at 3%, they argued the figure was flattered by collapsing imports and less-negative net exports, while private final sales growth was weak, indicating the economy was not as strong as the headline suggested. Bond Market, Fed Succession, and Dollar Outlook (Priority: 4/5): They debated why bond markets are not pricing a dramatic drop in short rates despite the possibility of a Trump-appointed dovish Fed chair. The likely release valve, they argued, may be a weaker U.S. dollar rather than a huge bond rally. Earnings Read-Through: Winners and Losers (Priority: 4/5): AI-heavy tech and banks were portrayed as resilient, while tariff-exposed industrials and manufacturers like GM are absorbing major costs. Bank credit quality looked stable, with delinquencies and charge-offs improving or stabilizing. Fiscal AI as a Research Tool and Future Show Content (Priority: 2/5): A long promotional segment highlighted Fiscal AI’s data platform and how it helps analyze company segments, KPIs, and business drivers. The hosts previewed more company-level macro analysis in future episodes.

Key Arguments: The Fed’s decision was effectively hawkish because market expectations had leaned more dovish, and Powell gave no signal that cuts were imminent. Tariffs are a tax/cost borne by companies and consumers, not foreign governments; so far, businesses have largely absorbed them. Tariff inflation may be a one-time price shock, but the risk is that it becomes embedded if firms use tariffs as a general excuse to raise prices. Headline GDP overstates strength because tariff-driven import distortion made net exports less negative; underlying private demand was much weaker. AI capital expenditure is becoming a meaningful driver of GDP growth and may be offsetting softness in consumer spending. The bond market is unlikely to move dramatically just on expectations of a future dovish Fed chair because that outcome is not fully priced and large real-money holders dominate the market. Most tariff pain is hitting old-economy manufacturers, while mega-cap tech and many financials remain relatively insulated. Bank consumer credit quality appears healthy overall, with delinquencies and charge-offs stabilizing rather than worsening systemically. The U.S. dollar may be the main adjustment mechanism if tariffs and trade policy are used to rebalance the economy. Trump’s tariff policy is not purely economic; it is also being used for geopolitical and political pressure, including on Brazil and China.

Data Points: Fed policy rate: 4.4% - Described as moderately restrictive and held steady by the Fed. September meeting market pricing: 55% chance of no rate cut - Market expectation cited after the hawkish meeting. Q2 GDP growth: 3.0% - Headline GDP figure discussed as being flattered by trade distortions. Private final sales / private demand: 1.2% real growth - Called the weakest reading since Q4 2022. PCE inflation, headline: 2.7% YoY - Most recent headline PCE reading cited. PCE inflation, core: 2.3% YoY - Most recent core PCE reading cited. Q2 PCE headline: 2.1% - Quarterly figure referenced as cooler than the annual reading. Q2 PCE core: 2.5% - Quarterly core inflation reading cited. Import price index: -0.8% - Referenced as a quarter-over-quarter annualized figure, used to argue tariff pass-through was not yet obvious. Microsoft revenue growth: 18% - Company earnings cited as evidence of AI strength; 17% excluding currency effects. Microsoft cloud growth: 39% - Used to support the AI CapEx narrative; 34% before currency effects was also mentioned. Meta stock move: Up 9% - Mentioned as a market leader benefiting from strong earnings. Microsoft stock move: Up 7% - Mentioned alongside Meta as a major market leader. GM tariff cost: $1.5 billion - Second-quarter tariff burden estimated for GM. GM tariff burden: 29% of pre-tax/pre-tariff profits - Illustrates how tariff exposure is squeezing industrial earnings. Whirlpool tariff impact: 250 bps EBITDA margin hit - Management guidance referenced as tariff cost expected to be offset by pricing and supply-chain actions. Whirlpool offset: 2.5% pricing actions - Used as an example of passing costs through to consumers. FOMC dissent: 2 dissenting votes - Bowman and Waller voted to cut rather than hold. Brazil tariff: 50% - One of the major upcoming tariff hikes mentioned. Myanmar tariff: 40% - Upcoming tariff rate cited. Laos tariff: 40% - Upcoming tariff rate cited. Thailand tariff: 36% - Upcoming tariff rate cited. Cambodia tariff: 36% - Upcoming tariff rate cited. Canada tariff: 35% - Upcoming tariff rate cited. Japan tariff: 15% - Upcoming tariff rate cited. EU tariff deal: 15% U.S. tariff / 0% EU tariff - Described as a negotiated outcome that the hosts saw as relatively favorable to the U.S. EU energy purchase commitment: $750 billion - Referenced as part of the EU trade deal headline. Trump tax cuts extension: One Big Beautiful Bill extends prior cuts - Powell said this was less stimulative than a brand-new tax cut. Treasury yield trade example: 10-year near 5% - Discussed as a bearish bond-market view from a macro trader. Treasury steepener carry cost: 50-60 bps - Mentioned as the cost of putting on the trade, making it harder to profit.

Pivotal Quotes: "The ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough." — Opening clip / intro: Used as the episode’s opening framing line before shifting to the Fed and markets. "AI is eating the economy." — Jack: Describing how AI-related capex appears to be contributing more to GDP growth than consumer spending. "The rate right now of 4.4% is moderately restrictive." — Jack: Summarizing Powell’s rationale for keeping policy unchanged.

Implications: Markets should expect continued policy restraint, tariff-driven volatility, and uneven sector performance. AI capex and banks look relatively strong, while manufacturing and trade-sensitive firms may face margin pressure. A weaker dollar may become the main adjustment mechanism.