The Fed’s Latest Rate Decision  … And Uncertainty Around Oil Prices 6/18/25

0:01Live from the Nasdaq market site in the heart of New York City's Times Square. This is fast money. Here is what's on tap tonight. The Fed in focus. The central bank holding steady on rates, but raising its forecast for inflation and cutting its outlook for growth. What it means for markets and for Chair Powell. And a robo-taxi route. Shares of Uber and Lyft taking a tumble on headlines out of Waymo. What the rollout of robo-taxis in New York City could mean for the future of transportation. Plus, banks get a boost on hopes for easing regulation. One analyst sees even more upside for Oracle and what's next for oil as Mideast tensions remain high.

0:38We'll talk to RBC's Halima Croft to get some answers. I'm Courtney Reagan in this evening for Melissa Lee coming to you live from Studio B at the Nasdaq. On the desk tonight, we have Tim Seymour, Dan Nathan, Guy Dami, and Michael Cantopoulos, who is Deputy Chief Investment Officer at Richard Bernstein Advisors. So we will start with all of the action after the Fed's latest meeting. Stocks losing steam in the final minutes of trading, while the Nasdaq managed to hold on to a small gain. Both the S &P and the Dow dipped into negative territory. All had been up a half a percent or more earlier in the session.

1:10Yields, meanwhile, ended well off their lows of the day, with the 10-year Treasury trading at 4.4 percent at its peak. Now, the move's coming after the Federal Reserve's latest meeting. While the central bank held firm on expectations for two rate cuts this year, new economic projections signaled higher inflation and lower growth. Guy, what do you think about what we heard today and what Chair Powell had to say? Well, again, great to have you here. In terms of what you just said, I think that's the story. And they're basically, the Fed is saying these tariffs, you want to go down this road, that's fine.

1:38What you're going to see is higher inflation. I think they raised it to 3%. You're going to see lower growth down to 1.4%. And I think it's all in the back of the tariff concerns, which are probably somewhat warranted. And I think the market sort of reacted in kind. We'll see what happens on Friday when the market reopens. But I do think you're right to bring up the bond market. I still think that's the story, and I still think rates are going higher. That has been the signal, really, Dan, right? I mean, the bond market has been obviously touchier over the years. Except it didn't move today. I mean, when you think about it, right?

2:05No, I mean, over the last few days, we've seen up or down five basis points in the 10 years. So it's not kind of signaling anything, you know, particularly worried one way or another. I think that a lot of folks might not have expected to see that kind of takedown in growth, right, and the expectations of prices kind of higher. I thought Fed Chair Powell seemed like he had it all under control. I don't think by any means the sort of the questions out of the pool I thought were really aggressive. You know, it's like, you know, as much as investors want to see them get a bit more dovish, it seems like the press also wanted to see that happen.

2:37And he kind of just hung in there. I mean, I think it's hard to kind of look at what's going on other than oil, take the geopolitics out of the way and say that inflation has not gone in the direction that they want it to go. And it's going to be there pretty soon. So to me, I think the expectations for only two 25 basis point cuts this year. I think that's the thing that's really frustrating people. I think that they'd like to see what we had last year in the last few months, 100 basis points. Michael, do the expectations feel appropriate to you with everything that's going on in the world? It's kind of hard to take out geopolitics, is it not?

3:07It's very hard to take out geopolitics, and obviously the tariffs fit within that as well. You know, I think what we've seen is that the Fed is obviously very backward-looking, despite the fact that Powell said that they're forward-looking and need to look forward. But he also, out of the same breath, said we need to see how the data comes out over the next couple months, which ergo means he is he's incredibly backward looking. And so, listen, I think we can agree that inflation is likely not fully here from the tariffs and that you're likely to see higher inflation pressures as you get towards August and September.

3:38Now, what that ultimately materializes as no one knows. It could be four percent. It could be four and a half percent. I think if I was in the audience, that's what I would have asked. I would have said, what happens if inflation goes north of four while unemployment is going up? then what do you do? What do you do in a stagflationary environment? And I think we could really be living in that come later this fall. And what can they do, Tim? I don't know. That's interesting because, I mean, that's kind of a bold claim right now, even though it wasn't a bold claim six months ago. I think it's fair, by the way.

4:05You know, and welcome, Courtney. But I tell you what, I think today Powell, first of all, played it safe. Sounds like the Fed's taking the summer off. The one thing that was a little surprising to me is their tolerance for inflation at a 3.1 percent PCE. I mean, the sense I get is that they're strangely a little bit more comfortable with higher inflation or tolerant of it or, you know, accepting of the reality. And then there was a point towards the end of the day, which I think also put some pressure, at least in his presser, I should say. I mean, when he started hitting comments that were hitting the tape, one of them was labor market isn't crying out for a rate cut and going to learn more about tariffs over the summer.

4:46Those two things tell me we're not doing anything anytime soon. So we're still at two cuts expected for this year. It's likely it could be one. But this is a Fed that is going to do zero. So if the market was expecting that, I don't think so. I thought it was interesting that semis closed higher on the day. You know, semiconductors were up 40 basis point. The rest of the market closed down small. Not a big deal, but the VIX collapsed. I mean, six, seven percent lower on the VIX in the middle of war and whatnot. I think the market wants to go higher. That's really interesting, Guy. I was just kind of thinking about energy and how it plays into all of this when we have so much up in the air with what's going on in the Middle East.

5:21But at least when consumers see that price of gas and if that fluctuates much higher, that's going to scare them. That also then could play into growth. I mean, how do you separate all this out or how do you put energy into the mix here with this consideration? You know, we talked about it last night. It's a fair question. What we've learned and I've learned the hard way over the years is geopolitical rallies in oil are typically pretty short lived. And I think you're probably seeing it now. The other side of that equation, if something were to happen, we said it last night, for example, Straits of Hermes closes or something to that effect, that obviously has ramifications.

5:51And that's when you can see oil go from$70 now north of$90. And then that's a whole different, I think, equation. But short of that, I don't think oil is a story that people like us typically or me, for example, want to make it out to be. I think the energy stocks are cheap, but I think the commodity is probably where it should be. Mike, you think it's safe to say that if PCE went to 4 percent, it would be, I don't know, transitory? I don't know. I mean, just, you know, if you think about what are some of the near term pressures, that sort of thing. I mean, that's a word we haven't used in a long time.

6:19I don't think it would necessarily be transitory. Remember, everybody thought the oil embargoes of the 70s were going to be transitory. Then, of course, they became persistent. And so what tends to happen with inflation is as inflation goes up, everybody thinks it's transitory, but then it builds in higher inflation expectations in the future, which drives up prices for a much longer period of time. And so I'm not entirely convinced that tariffs or, you know, even a short-term spike in oil, given what's going on in the Middle East, is necessarily going to be transitory. The other thing I'll just throw out there very, very quickly is remember a tighter Fed, if you believe that the Fed is tight right now, should actually beget lower long-term yields, not higher long-term yields, because the implication is that they're slowing long-term growth and inflation by keeping the front end very elevated.

7:05So just something I wanted to throw out there is I think it oftentimes gets mistaken that, oh, if the Fed cuts rates, rates are going to fall across the curve. That's not the case. And they fall on the front end, but not necessarily in the back end. Michael, if we're not feeling the effects yet of tariffs, when do you think they will be in play? And how late will the Fed be potentially to the game if they're data dependent and backward looking? Yeah, I think that it's reasonable to expect right now, right? We're in a sort of a first in, first out type of economy where, you know, you front loaded inventory into the first quarter.

7:36You're selling that inventory now, which hit before tariffs. And you likely have to work that through over the course of the summer to ultimately be a retailer or a manufacturer, whatever it may be, to start to raise rates. And that probably happens sometimes in August, September, which means the Fed catches on to that data September, October, which means, you know, it's later, much later this year before they really start addressing, you know, potentially higher inflation or not at all. Again, the question for me becomes almost, does the Fed want some amount of demand destruction to help them with the inflation mandate?

8:07Are they actually banking on that? I think they may need to do that. Well, they want the labor market to fall. They don't want it to fall apart, but they want to see it falling apart. And I would just get back to that quote. I mean, right now he's saying, I'm looking at the job market. This is Powell. And I don't see any reason to cut. And this seems to be back to be the more important side of their mandate. Again, my assessment of today was I'm comfortable with slightly hot inflation because I know tariffs are there, but I think they're going to damp that. I think Middle East war damps that. I think there are dynamics that are also mildly inflationary from higher oil prices from that war.

8:38until I see the labor market falling apart. However, I don't feel the need to lean on that side of my mandate. And, you know, so that's equity negative. I mean, it's net equity negative if you believe that you need the Fed to kind of goose markets here. But what we've all said and we would all say, and I know Michael would say, this is the kind of stuff they talk about every day, I think, but the growth scare is the bigger issue here. So if we do have stag inflation, absolutely the market is not priced for that. Right now, the market's resilience is something that I'm willing to say is somewhat tied to economic resilience that also looks through tariff headlines and says we're not going to get half of those tariff realities.

9:15As a person with baseline anxiety, it's pretty phenomenal to me that the market is hung in here. But for more on what we learned today from Fed Chair Jerome Powell to a man that was in the room, let's get to Steve Leisman. He's still in Washington. He's got the details. Hey, Steve, what else did Mr. Powell say that really piqued your interest today? Well, I think to me the warning to the markets in his press conference essentially that we're not out of the woods when it comes to tariff inflation, that he does see a meaningful amount of inflation coming in the months ahead. Let's listen to what he said.

9:49Every outside forecaster and the Fed is saying is that we expect a meaningful amount of inflation to arrive in coming months. And we have to take that into account. I thought that the projections were also interesting. They downgraded GDP again, down three-tenths to 1.4. Unemployment ticked up again. That's the third forecast in a row. Core PCE ticked up again, third forecast in a row. And the Fed funds rate unchanged at 3.9. But, God, I think that's a lot like a placeholder. You fill it in because you have to fill it in for the test. But I don't know if you mean it. This is the second forecast in a row the Fed has predicted a more stagflationary outcome of weaker growth and higher inflation.

10:27and at the same time power was clear, the forecast suffered from a huge amount of uncertainty. We haven't been through a situation like this, and I think we have to be humble about our ability to forecast it. So that's why we need to see some actual data to make better decisions. We'd like to get some more data. And again, in the meantime, we can do that because the economy remains in solid condition. I'll associate myself with the remarks of Mr. Seymour. where he said, yes, all this raises questions about whether the Fed, can it feel confident enough in the inflation outlook to meet these market expectations of a first rate cut in September?

11:05Courtney, I'm just not sure that the Fed chair took his arms around the market today and said, guys, I got you in September. I think he put his arms around the market and says, I don't know. What do you make of Dan Nathan's comments that he sort of thought the press was pretty hard on the chair today, really pushing for a little bit more? I mean, look, what we're trying to do is figure out what he knows and what what he's thinking right now, even while things are moving. So I think we did our job. I think he did his job. And I think it's all fine. I don't know. I'm amused that Dan has sympathy for the Fed chair, but he's a grown up.

11:41He's been at this job for quite a while. And I mean, at least we didn't call him dumb. Of course not. Of course not. Steve, thank you so much for joining us. Appreciate it. I know you hustled over to be with us tonight. Guy. You know, I think the question comes down to what potentially has the worst outcome, being too early and accommodative or being too late and missing it. And I don't know the answer to that, by the way, but it seems as though they're going to sort of hedge on being too late because of all the things they see. Because they like to be too late. I mean, it's what the first of the 20th is supposed to do.

12:15Yeah, right. I just thought the press was kind of beating the same drum. Like they were kind of hitting the same question. That was my only point. I didn't think they were particularly hard whatsoever. I do find it really interesting because, you know, a year, I guess it was September, right, when they did that 50 basis point cut. The first, I think, since the start of COVID, they were really worried about the labor market. That was the justification. Yeah. So they went too hard. A lot of folks thought that they did. Right. So we had 100 basis points towards the end of the year. And now I think to Michael's point, I think a lot of us like what would be the conditions in which they do it because they can or because they have to.

12:50Right. And in those scenarios, if they have to, because you see the labor market weakening, you see growth weakening, you see persistent sort of inflation. Well, that's a situation that I think is really hard because if they go cut another hundred basis points and we're at three and a half percent on Fed funds at the top. I don't know what that does. I mean, if anything, it could stoke inflation. Did anybody want to hear, you know, we're near to a cut today, though? I mean, it gets back to ultimately what, you know, I don't know that the market wants to hear that. And I know the market loves the Fed and is used to, has been reared on more Fed than less Fed.

13:22But if we took out tariffs and if we took out war and we were left with the labor market we have, I know those are big ifs. But, I mean, on some level it is and it's not. We didn't have war a week ago. We didn't necessarily, we still don't really know what's going to happen on July 9th. We still don't really know where a lot of these tariffs are. So would we be pulling for a rate cut here? And outside of that's what markets want? I don't think so. And I think the Fed did what they had to do. We're going to move on here to a sector that is obviously largely affected by rates. Bank stocks, meanwhile, did hold on to their gains after this Fed decision.

13:53And there was also news that the central bank is considering easing capital requirements for big banks next week. So for more on that, let's bring in Chris Mamaronek. He's of Janie Montgomery. Scott. Chris, what do you make, I guess, of what the Fed chair had to say as it pertains to your coverage to the banks? What does it mean now that we know a little bit more, maybe, about what the Fed is thinking today than, say, we did yesterday? So, Courtney, I think that the higher for longer rate environment benefits the banks. They can have a higher spread. I think that the deposit costs have already come down.

14:24If anything, I think the lack of certainty that the Fed has is telling the banks to continue doing what they're doing, which is a very careful lending setup. It's a very slow loan growth. That's the only bad news that we see. Credit costs continue to behave well. I think there's no change. So to some extent, no news is good news for these companies. What about on this SLR change or potential change? I mean, what does that mean to your coverage universe? Does it free up more capital and who benefits the most potentially? It really helps the large eight G-CIPI banks that are trading treasuries. Yes, they could hold more treasuries down the road.

15:02But ultimately, I think it facilitates trading and activity to create more liquidity, which is sorely needed. For the last several years, we haven't had the proper trading liquidity in treasuries. It's created these dislocations day to day and week to week when you have volatility. And so the SLR is going to help facilitate that. I think Jamie Dimon covered it well in his April earnings call that it really helps to trade and helps clients accommodate. It doesn't necessarily mean the bank's going to hold more treasuries. Over time, you may see the banks hold more. Yeah, Chris, first of all, I share your view.

15:33I think this is your view that big banks look pretty good here. I think they do. And I think actually there's a number of forces. But I hope to oversimplify this because it's not this simple. Of the three, whether it's investment banking and sales and trading activity or net interest margins or a regulatory tailwind, which of these are the most important for you in terms of your outlook and your ratings and what we should all be looking at here? Sure. Well, Well, spread is the biggest dollars, Tim. So I think spread is the first. I think investment banking would be next. And I think the trading is right there with investment banking very much a close third.

16:07You know, the reality is the banks still make a lot of money on their regular way deposit and loan taking. And I think that even though we have competition from the outside world in private equity, I think that there still is a fair amount that banks are doing with their balance sheet. And frankly, the low cost of funds has always been the competitive advantage that these banks have. Chris, understanding that the KRE is probably not the best constructed ETF, but what do you make of the underperformance of these small and regional banks compared to the larger banks that you and Tim were talking about?

16:35Sure, Guy. I think it has a lot to do with those medium-sized banks while they're taking share and making a lot of money. They're just not sexy. They're not growing revenues as fast as other parts of the financial ecosystem. I think it has more to do with the simplicity that investors would rather chase crypto and other areas that are non-regulated. And at some point, we're going to come back to the regulatory side, because I think the easier regulatory environment is going to help these banks merge. It's going to help them do better and have less onerous rules and regs that have been constraining them the past five years.

17:07But it's just going to take time for investors to kind of warm up. And I think a lot of it goes back to loan growth and the fact that it's not that attractive to see these are just slower growth, you know, kind of late stage companies. And they're not as growth oriented as many other parts of the marketplace. Chris, before we let you go, I was going to ask sort of where you're thinking on Bank M &A. You sort of mentioned it there with the possibility of lower regulations now that some of these seats have been filled. Who benefits in your space? Sure. I think your medium-sized banks who can consolidate and create more 40 and 50 and 60 billion dollar banks is really where the action is going to be.

17:43Over the next two years, we probably see a few of the large regional banks marry. It'll be interesting to see what Wells Fargo does now that they can take on more assets. I think they will probably be simply putting liquidity to the work for a while. But I think the M &A is going to be much more of a mid-cap and smaller cap arena as you really consolidate that end of the industry. That is going to continue to slowly take hold. We had a deal this week. We have a few that have lined up in the recent months. But it's still not anything seismic like we've seen among big bank to bank. I think a couple of those may take place, but it's probably next year's business.

18:19Got it. Chris, thank you very much for joining us here this evening. Michael, what do you make about sort of the general financial space and the beneficiaries potentially in the space based on Fed policy? Yeah, we actually like the banks at the moment. You know, out of all the cyclical risk out there, the banks are what we would call chicken cyclical or low beta cyclical. Chicken cyclical? Chicken cyclical. I like that. Banks and industrials, you know, versus a high octane cyclical like energy, for example. Right. And so we like the banks. Listen, we think earnings growth is likely going to slow pretty meaningfully throughout 2025 from 13, 14 percent in Q1 all the way down to sort of 2 to 3 percent by Q4.

18:57That's not terrible. It's not an earnings recession. The banks should do OK in that sort of environment, especially if we're a little bit off and earnings growth ends up a little bit higher than we expect. You have deregulation. You've had a much deeper yield curve of helping spreads, to Chris's point. And so, you know, in terms of what we like within the cyclical world, I'd much rather own financials than, say, you know, tech comp services and discretionary. It's interesting, though, coming into the year, it seems like everyone thought the banks were just going to be huge beneficiaries of sort of changes in policy out of Washington.

19:29We haven't really seen it yet, though. By the way, if we have 13 percent earnings expected growth down to two to three percent, this economy is going to have a real problem. I mean, like, just think about that. It might not be an earnings recession, but it's going to be a recessionary economic environment. Like, make no mistake. And again, maybe you're just kind of, you know, throwing those names out in a chicken sort of fashion. I mean, we can all agree on that. I mean, like, that would be an absolute disaster. I don't know if it would be a disaster. I don't think it would be a disaster. Sorry, what's the disaster we're talking about?

19:56No, we came in with 13 percent expected EPS growth year over year for the S &P 500. Michael's saying by the end of the year, it could be 2, 3 percent. Yeah, but take 2022, right? In 2022, you had 3.5 % unemployment, which was very, very low. We were full employment. It wasn't an economic disaster at all. And earnings growth declined to what? We did have a bear market. Negative 10%. You did, for sure. And so you can have a bear market without being an economic disaster, though. So from an economic, remember, you've got to separate economics from profits. Yeah, but the market's going to sniff that out ahead of time.

20:26Oh, for sure. So what I'm saying is, if that's the anticipation, then you're going to see a much weaker S &P 500. because you're going to see margins that are at peak right now collapse. I 100 % agree with that. You guys came to the same place. You ever been chicken cyclical? You see that? You know, I've been a number of different things. Chicken cyclical probably not. I'm just trying to figure out what it is. Turkey cyclical? That's great. Everybody's got a time in that place to eat chicken cyclical. Chicken tacos. Yeah. You know who's never chicken? Eamon Javers. No. No. Stop it. Nice segue.

20:54Meantime, NBC is reporting that President Trump is currently in the Situation Room meeting with the Security Council to discuss the Israel-Iran conflict. So CMBC's Eamon Javers has more. What have we learned, Eamon? This is obviously a very serious and ever-changing situation. Yeah, absolutely, Courtney. We don't know what options the president's considering in that Situation Room meeting, which, as you say, is ongoing at this hour. What we do know is that the president held a press availability shortly before the Situation Room meeting this afternoon. He was doing a photo op with the Italian soccer team Juventus in the Oval Office.

21:25He took some questions from reporters there, and he was asked if he has decided what to do in terms of U.S. involvement with Iran. Here's what he said. I have ideas as to what to do, but I haven't made a final. I like to make the final decision one second before it's due, you know, because things change, especially with war. So, Courtney, you heard him say, I like to make the final decision one second before it's due, as in, you know, due like a homework assignment would be due. That, to me, just sort of listening to the president's words implies he's considering some sort of action that requires a deadline, perhaps a military deadline where he's up against a go or no-go decision that's coming up relatively soon.