Tight Labor, Tight Policy, Loose Ends

June 27, 2025

This past weekend wasn’t for the faint of heart. Given the chaos between Iran and Israel many had their head on a swivel waiting for the next shoe to drop or anticipating a long and drawn-out war between the two nations. Markets were nervous, individuals were glued to the TV, then the fever broke.

Like the skies opening up after a passing storm, markets breathed a sigh of relief and headed north. Some questioned why, as zero economic data changed. Uncertainty trumps all (no pun intended) and removing the immediate threat of nuclear war, or even war in general, allows markets to renew their focus on the issues at hand – Interest rates, tariffs and the Fed.

INTEREST RATE WAITING GAME

On Wednesday, June 18th Fed Chairman, Jay Powell, held his monthly Fed meeting during which it was decided not to make a change to interest rates, despite months of pressure from some in Washington. As Mr. Powell has repeatedly stated he and his colleagues must see hard data (unemployment/inflation) to warrant lowering rates. The data has yet to be persuasive enough.

On the flip side of the argument President Trump has continued to voice his desire to have rates come down significantly. Like a homeowner refinancing their mortgage this would likely take some heat off the federal deficit’s interest burden and possibly pave the way for more policy progress.

For some Mr. Powell has gained a reputation for being late on decisions. But he has also ‘threaded the needle’ by managing the US through multiple massive shocks over the past 7 years while chasing the elusive economic soft landing. So far he gets the medal.

Although there will be no immediate changes now Mr. Powell as alluded to two cuts before the end of the year.

LESS SEATS OR EMPTY SEATS?

As US unemployment remains fairly steady the number of white-collar employees at US public companies continues to shrink - significantly. The question on many minds is what is behind this?

2020/Covid brought a massive shock to the economic system. But it also pulled forward technology in the workplace and opportunity in the workforce. Admittedly some companies over-hired. Along the way many also used the technology ‘pull-forward’ to simply get more efficient (think automation and AI). Let’s not forget that approximately 11,000 Americans are turning age 65 each day (2024-2027). [1} Demographics and technology continue to be a moving target in today and in the future.

Chart Source [2]

SAME PATTERN, DIFFERENT THREAD

We have been discussing many of the same factors over the years. Interest rates, inflation, Iran, technology, etc. As famed author, Morgan Housel, has said: ‘the long run is just a collection of short runs you have to put up with.’ Although we have a massively complex economy we know the elements, the terrain, and the obstacles. Success lies in getting them all to work together.

[1] Source: CBS News

[2] Source: WSJ 6/18/25