Stocks Wipe Out CPI-Fueled Gains as JPMorgan Sinks

0:00They told us to expect change. They warned us about the transition. But honestly, they forgot the best part. This is the chapter where we finally focus on us. LifeMD delivers expert menopause and midlife care right from your home. From hormone health to holistic wellness, LifeMD helps you feel your best for the best years of your life. LifeMD, it's just getting good. Visit LifeMD.com slash goodlife. The thing about AI for business, it may not automatically fit the way your business works. At IBM, we've seen this firsthand. But by embedding AI across HR, IT, and procurement processes, we've reduced costs by millions, slash repetitive tasks, and freed thousands of hours for strategic work.

0:50Now we're helping companies get smarter by putting AI where it actually pays off, deep in the work that moves the business. Let's create smarter business, IBM. This podcast is brought to you by Wise, the smarter way to manage your money internationally. If you're getting a headache from juggling different currencies and different bank accounts in different countries, there's a better way to receive money in the currency you need, without the slow transfer times or hidden fees. Meet Wise, the savvy way to handle your money internationally. Hold balances in up to 40 currencies with the mid-market exchange rate on every conversion, whether you're receiving payments from tenants abroad, earning as a digital nomad, or converting dividends from your international investments.

1:29The Wise Multicurrency Account is for you. Be smart. Get wise. Download the Wise app today or visit wise.com. Terms and conditions apply. Bloomberg Audio Studios. Podcasts. Radio. News. This is Bloomberg Business Week Daily. Reporting from the magazine that helps global leaders stay ahead. With insight on the people, companies, and trends shaping today's complex economy. plus global business, finance, and tech news as it happens. The Bloomberg Businessweek Daily Podcast with Carol Masser and Tim Stenebeck on Bloomberg Radio. I want to go now here to the Bloomberg Businessweek studio and I want to bring in Chris Whalen.

2:14He's chairman of Whalen Global Advisors. He's co-founder of the Institutional Risk Analytics. He's co-author and author of many books, including Inflated Money, Debt, and the American Dream. And he also worked at the New York Fed in the 1980s. And that's exactly where I want to start, because we did just hear the president making comments in Michigan, ratcheting up his pressure on the Fed chief. He said, I want a Fed chief to put rates down on good news. When there's good news, the market should go up. When the market goes up, the Fed should lower rates. This comes after a weekend where I don't need to remind everybody about the pressure that the Fed chair is facing and what happened and what is happening with this Department of Justice probe.

2:49But as somebody who has experience in markets, who has experience at the Federal Reserve, what is the risk to markets here? What is the risk to the economy with the president job owning like this? I think the risk is obviously confidence. It also, I think even more importantly, risks calling the office of the presidency into ridicule. Because when you say things that are clearly not well thought through, and when it's obvious that they're not getting the outcome that they say that they want, then you just sit back for a minute and say, you know, what are you trying to do? I worked for Paul Volcker at the Fed of New York and then Jerry Corrigan.

3:31These were both very serious people who never said anything in public unless they had to. I think that Donald Trump has mishandled the Fed. The way to have dealt with this was to simply say, you know, he hasn't done a good job. We're looking forward to getting a new chairman. That's it. and then let the man exit and retire. They could have also used the several aspects of policy, quantitative easing, the purchase of all those securities during COVID, obviously the refurbishment of the Fed's headquarters, which is rather grotesque. But you didn't have to do it this way. And by attacking Powell personally, continuously, I think they're not going to get what they want.

4:18I expect Powell to stay on the board until his term as governor is over in 2028. Yeah, you're not the only person to share that with us in recent days. I think that's seen as a wide view. We'll see what happens. I hear you. And then I say, and yet, and yet, we're not seeing the equity market react. And we're not seeing, more importantly, the bond market react. It seems like the bond market is saying the independence is not threatened. Maybe it's Senator Tom Tillis. Maybe it's Republicans coming out and saying, we're not going to let your Fed pick go through until this legal matter is resolved.

4:52Is that what's happening here? Because it doesn't seem like the markets are taking the independence risk seriously. The financial markets can get comfortable with just about anything. Would they be upset if rates fell? No. Would they be upset if you had other policy changes at the Fed that were more pro-growth to the president's point just now? No. They would be very happy with that. They're not really concerned with the medium and long-term consequences, which is what I think you're really alluding to with your question, which is will people take the United States seriously when it comes to economic policy?

5:27You don't hear anybody talking about the budget deficit. You don't hear anybody talking about any number of things. And the proposals that come out, you know, capping credit cards at 10%, that doesn't work. It means an act of Congress. The better customers in any portfolio like that subsidize the inferior customers, whether you're talking about housing or credit cards. So when you start going into these populist policy descriptions, which the president seems to be more and more interested in, it just is a disconnect. Because none of these things, I think, are really going to happen. The Congress is not going to pass a national cap on credit card rates.

6:08I don't think Fannie Mae and Freddie Mac are going to buy$200 billion worth of their own debt. They don't have the cash. Are they going to go out and borrow the cash? You know, people forget that the GSEs have to hedge their books. So the net effect on rates is going to be just about zero. The Fed doesn't hedge. That's why they got such an immediate impact in March of 2020. So, you know, when you look at the details, and obviously no one at the White House is looking at the details, these proposals don't have a lot of substance. And I think that's why the markets haven't reacted. We kind of shrug it off and say, ah, more and more.

6:46They just don't think it's going to happen? Is this like willful suspension of disbelief from the different markets? I think so. Because, you know, if Jamie Dimon and the rest of the banking industry decided to fight credit card caps, I think they'd win. I also think that Trump is in perilous waters right now when it comes to his Fed appointment, because he may not be able to get a majority of the Senate to support him. How would that look? You know, I think Kevin Hassett may be done. We may see Kevin Warsh instead, which I didn't expect. I'm a friend, a big supporter of Warsh, but I, you know, I didn't think he was in the running until about a month ago.

7:24So, you know, this whole situation is a surreal quality to it. And I think the markets haven't reacted in part because they can't believe it. They haven't had time to process it. and they also I think discounted because it's not really well thought through I think there were ways that they could have managed Powell for example that would have gotten the president what he wants but instead you're gonna have a sole chairman appointed you're gonna be more hawkish FOMC as we have now and then you're gonna have chairman Powell sitting there as a governor for the next two years till the end of Trump's term.

8:04That's not what they wanted. Yeah. I mean, a lot of folks out there saying right now that this attack or specific attack over the last 48 hours has backfired. Really appreciate you joining us today and sticking around. My pleasure. We know the time was cut a little short due to President Trump. So that's Chris Whelan. He's chairman of Whelan Global Advisors, author of Inflated Money, Debt and the American Dream, among other books, and editor of the Institutional Risk Newsletter here in the Bloomberg Businessweek studio. Stay with us. More from Bloomberg Business Week Daily coming up after this.

8:38They told us to expect change. They warned us about the transition. But honestly, they forgot the best part. This is the chapter where we finally focus on us. LifeMD delivers expert menopause and midlife care right from your home. From hormone health to holistic wellness, LifeMD helps you feel your best for the best years of your life. LifeMD, it's just getting good. Visit LifeMD.com slash goodlife. The thing about AI for business, it may not automatically fit the way your business works. At IBM, we've seen this firsthand. But by embedding AI across HR, IT, and procurement processes, we've reduced costs by millions, slash repetitive tasks and freed thousands of hours for strategic work.

9:28Now we're helping companies get smarter by putting AI where it actually pays off, deep in the work that moves the business. Let's create smarter business, IBM. For many men, mental health challenges aren't recognized until they've already taken a toll. Work pressure, financial stress, changing relationships, and traditional expectations around masculinity can quietly wear men down, often without clear warning signs. In Season 3 of The Visibility Gap, Dr. Guy Winch and his guests explore how these pressures show up, how to spot them earlier, and how men can access meaningful support. Listen to the new season of The Visibility Gap, a podcast presented by Cigna Healthcare.

10:10You're listening to the Bloomberg Business Week Daily Podcast. Catch us live weekday afternoons from 2 to 5 Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business App. Or watch us live on YouTube. The president still making comments. He says now that if I had to help the Fed, housing costs would be easier. The president also praised that huge impact of$200 billion mortgage bond buy, which Chris Whelan just referred to. The president also saying, Christina, that credit card interest rates are too high. Way too high. The interesting thing. Well, there's a few interesting things about this president, obviously.

10:47One of the things I find interesting is he's very hard to dissuade from these issues. You know, we saw with the tariffs, this is something his policy advisors and folks around him were able to get him to back down on in the first term. And he carried that all the way through that four year hiatus. And then when he came back, he was there again. It will be interesting to see the only person who was able to bend him a little bit was Jamie Dimon. When he went on the airwaves and said, this is a bad idea, all of a sudden Fox Business morning. We had that 90 day pause and we saw movement from the White House.

11:18So I am wondering, after Diamond's comments today about how Fed, you know, the impartiality of the Fed not being there could impact the viability of the U.S. financial system. I'm wondering if Trump heard that, if someone will play it for him and if we will see any kind of impact on the White House. The perfect segue for our next conversation. The president criticizing Fed Chair Jay Powell after a Justice Department probe into the Fed's headquarters renovation sparked backlash across Washington. The president telling reporters outside the White House this morning, here's what he had to say. He's billions of dollars over budget.

11:50So he either is incompetent or he's crooked. I don't know what he is, but he doesn't certainly doesn't do a very good job. That's President Trump outside the White House earlier this morning. Meantime, underlying U.S. inflation rising in December by less than expected. We've got a lot to get to with Matthew Luzzetti. He's chief U.S. economist and head of U.S. economic research at Deutsche Bank. Thanks, too, for sticking by. I mean, of course, we were to talk to you a few minutes ago and the president started on time today. More important things cropped up. It's OK. Well, we're not going to judge what's more important.

12:20We also plan for the president to be late. We honestly had not planned for the president to be on time. So thank you for hanging out. We appreciate it. So you call this DOJ probe of the Fed a, quote, unprecedented challenge to Fed independence. How, in your view, is this different from pressure that other presidents have applied? LBJ, for example, or President Nixon? Yeah, look, I think there really is a long history here where presidents have applied pressure to the Fed through various measures. I think in that note, I had talked about the historical experience where LBJ and William and Chesney Martin had this kind of dust up around in the 1960s to try to bring rates lower.

12:56Obviously, President Trump has pushed for the Fed to cut rates aggressively in recent times. But taking legal action here is the unprecedented aspect of what's happening. I was listening into the conversation that we were all just having. I think initially you did see the bond market respond yesterday. You saw tenure yields rising five to six basis points at longer end of the curve was moving as well. I just think it was a really important development that Senator Tom Tillis, other Republican senators came out and basically said, look, we are going to block any Fed appointees until this gets resolved.

13:29And so I think that opened up potential counterproductive actions here, whether it's the chair palates staying on or that you won't get more dovish members on the Fed. And that margin is so thin. I mean, it's the caucus has been together enough that they've been able to uphold the administration's policies. But, you know, when you start getting calls from those donors, from your own portfolio managers saying this is going to have an impact, I think that does move people. Obviously, Tillis is retiring, so he has a little bit he's in a swing district, but he's able to go out on this ledge because he doesn't have to run again.

13:57But I'm wondering why you think this president is so obsessed with this, especially given recent precedents. I just every time think of Turkey and what happened there. You know, they fired the guy who did the numbers because Erdogan didn't like the numbers. They raised interest rates and then the Turkish lira collapsed. Has no one in this administration, are they not concerned about that? Yes, I think I would think of this through the lens of affordability. It is the number one question for U.S. households. I think it's what's driving elections and kind of political decisions. And I think everything that you see coming out of this administration is focused on that question at this point in time.

14:30I think key to affordability in the housing market is viewed interest rates. Now, I think the disconnect is that if the Fed cuts rates aggressively, It does not necessarily mean that the long end of the curve is going to come down as well. It doesn't mean that mortgage rates are going to come down as well. In fact, every time that we've seen an attack on the Fed, including yesterday, the long end rates typically rise, mortgage rates rise. And I think that's where it becomes kind of counterproductive for the administration. Matt, you got to run. We appreciate you taking the time and joining us on Bloomberg Business Week today.

15:01Stay with us. More from Bloomberg Business Week Daily coming up after this.

15:08So there's a lot of noise about AI, but time's too tight for more promises. So let's talk about results. At IBM, we work with our employees to integrate technology right into the systems they need. Now, a global workforce of 300 ,000 can use AI to fill their HR questions, resolving 94 % of common questions. Not noise. Proof of how we can help companies get smarter by putting AI where it actually pays off. deep in the work that moves the business. Let's create smarter business. IBM. For many men, mental health challenges aren't recognized until they've already taken a toll. Work pressure, financial stress, changing relationships, and traditional expectations around masculinity can quietly wear men down, often without clear warning signs.

15:52In Season 3 of The Visibility Gap, Dr. Guy Winch and his guests explore how these pressures show up, how to spot them earlier, and how men can access meaningful support. Listen to the new season of The Visibility Gap, a podcast presented by Cigna Healthcare. Everyone has been there. Your team's feedback is scattered across emails, chats, and sticky notes. It's a mess. But PDF Spaces and Adobe Acrobat gives you one collaborative workspace to streamline every file and comment. So, if you need six departments to finally agree on a proposal, do that with Acrobat. Need to turn a mountain of feedback into one plan of action?

16:32Do that with Acrobat. Want to stop searching for files and finally get everyone on the same page? Do that. Do that. Do that with Acrobat. Learn more at adobe.com slash do that with Acrobat. You're listening to the Bloomberg Business Week Daily Podcast. Catch us live weekday afternoons from 2 to 5 Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business App. or watch us live on YouTube. Delta fell as much as 4 % earlier in this session. The company providing a profit forecast, it fell short of Wall Street estimates. Delta's taking a more cautious view for this year after the aviation industry emerged from a volatile year.

17:13I wanna bring in Savi Scythe, Managing Director for Airlines and Advanced Air Mobility with Raymond James. Savi joins us from St. Petersburg, Florida. Welcome. Delta's the first major airline to report. Investors often look to it as a bellwether for how the industry is doing. The report contrasts quite a bit with what we heard from Ed Bastian, the CEO of Delta, last year at this time. And certainly a lot has happened when it comes to trade policy, when it comes to immigration in the US. How would you characterize Delta's outlook for this year? Hi, Tim, thanks for having me. Now, you know, I think if you look at the momentum in terms of demand, corporate strength, that's sounding a lot like what we had last year at this time.

17:55In fact, you're seeing strong year-over-year growth on top of a very strong setup last year to come into the year. What's different is, I think, a little bit more of a recognition that there's a lot of policy volatility and anything can happen. So maybe a very cautious start in trying to forecast a full 12 months based on just what we're seeing so far in the year. So I would say overall revenue trends very strong, but maybe lessons learned and being a little bit more cautious on a full year outlook. I also want to ask you, you know, the Delta CEO said that demand from high spending consumers continues to be strong.

18:32And that's something we've seen in a lot of the hospitality industry. He added effectively none of our growth in seats will be in the main cabin. They virtually all will be in the premium sector. Are airlines still losing money from economy passengers, people like me who are cheap and in the back of the plane? And at some point, are they going to run out of folks who can pay a premium for a better seat? What's the model here and what's going to work? Hey, Christina, it's really, there's a lot of kind of revenue management here and premium passengers are flying, but the very price-sensitive passengers are still not, you know, there's probably too much supply in that market and the fares are weak.

19:13And the interesting thing for the group is you are seeing capacity in that part of the market getting rationalized slowly. And so there's an opportunity here for another leg up as we get that market stabilized. But you are correct that the strength still is on the premium side with the main cabin fare environment not as strong as premium. Zavi, I want to go to some comments that Delta's CEO at Bastion made on this morning's conference call. This is about the credit cards and the news that we got late last week from the president calling for a cap on credit card rates. Check out what you had to say.

19:48One of the big issues and challenges with the potential order is the fact that it would actually restrict the lower end consumer from having access to any credit, not just what the interest rate they're paying, which would upend the whole credit card industries. That was Delta CEO Ed Bastian on this morning's conference call with analysts. So a couple different things I want to talk to you about here is one, Delta, when you think of credit cards and airlines, Delta is the airline with the credit card. Help us understand the contribution that Delta's credit card has to top line to bottom line. What do we need to know?

20:29Yeah, I mean, credit cards is really important, has become important for the airlines as a whole, and not just for Delta. It's most powerful for the big four, so the airlines with kind of the biggest networks here. But even some of the, you know, the smaller airlines like Allegiant, you know, JetBlue, decisions are being made based on, you know, how much credit card contribution and what routes might appeal to credit cards. It's really important. You know, in the past, we've said at least three points of margin are coming from the credit card, probably more. And it's also important in terms of cash flow.

21:04It's a steady stream of cash flow. So when you do have demand volatility where suddenly some, you know, some shock happens and people may not want to fly, you're still making charges on your credit card. So for airlines, it's also a nice stream of steadier revenue that comes through in volatile kind of passenger travel demand environment. And so it is an important component for airlines and something we're watching closely. Yeah. So it's interesting because he was talking about two different things there. One, he's talking about, which we've heard from a lot of a lot of the banks of late, which is access to credit and why it's important to have these products to extend credit to a large portion of the American population.

21:41If this were to go into effect and a lot of there are a lot of skeptics out there, a lot of people saying this would never happen. But what would be more at risk for Delta? Would it be the actual passengers who would not be able to afford to travel and have this discretionary spend as a result of these caps? Or would it be that Delta wouldn't be able to make as much money with their credit product? given delta is more premium and kind of higher end focus i think for delta it it might be a little bit more on just fewer people have you know having this uh card because when you do get a card you're more likely to spend with that airline you're less likely to shop around because you do get benefits so that's the aspect of it and and i would say this is probably going to be a lot more um to at bastion's point it's going to be a lot more impactful probably for the smaller airlines and for airlines that rely on a lot more price-sensitive passengers that need that credit to make those trips.

22:36Well, and speaking of those smaller airlines, we also wanted to ask you about, in other aviation news this week, on Sunday, Allegiant announced that it's buying Sound Country Airlines for$1.5 billion. They are kind of the other end of this market we were just talking about. They focus on lower-income, middle-income folks. They have a lot of small and medium markets, although this merger will allow them to reach more places. What are your thoughts on that merger? And is that what we're seeing in a lot of other industries, the hollowing out kind of the middle where you're getting higher end and budget making a profit, but everything else in the middle is really struggling?

23:13Yeah, Allegiant's really interesting, Christina, in the sense that this is an airline that focuses on, you know, serving small markets to direct leisure. So Allegiant's definitely a lot more leisure and doesn't carry the corporate passenger that you might get on one of the big four airlines. But they still cater to a higher income net worth individual because they do fly folks to their second homes and things like that. So they span the spectrum. And what I would say is I think what's happening here is airlines need – it's like any network. The bigger you are, there are scale benefits. And I think that's what the smaller airlines are figuring out is they need to get bigger.

23:55The bigger you are, the more benefits there are to loyalty, to corporate credit cards and things like that. And so it's trying to get bigger and trying to get scale so they can compete with the big four. I think that's what you're seeing. And we think we'll see a lot more of that. Yeah. Talk a little bit about that. That was my next question is what other M &A do you think we're going to be seeing this year when it comes from, especially the smaller airlines? I mean, no question, I would imagine JetBlue, Spirit, Frontier are going to be trying to do some shopping. Yeah, there's definitely, I mean, there's probably something more imminent with Spirit.

24:30We know that given their kind of cash flow perspective and needing creditors to put more money in. So we'll get an answer there, you know, if it's a matter of that they, you know, have to do a Chapter 7 scenario or they merge with like a Frontier. But you do see that kind of lower end or the smaller end of the market really needing to kind of consolidate and get bigger so that they're stronger to kind of compete with. JetBlue, they have a lot of cash, but they also have a lot of debt. So we'll see what happens with them. They have a, you know, a strong standalone plan that they're executing. And it will all depend on, you know, if we get a stable demand environment and if we can see some earnings and balance sheets improve here in 2026.