Category: Market Action

The Boston Fed has released a “Current Policy Perspective” titled Who Will Pay for Tariffs? Businesses’ Expectations about Costs and Prices by Philippe Andrade, Alexander M. Dietrich, John Leer, Xiao Lin, Raphael S. Schoenle, Jenny Tang, and Egon Zakrajšek:

Amid evolving global trade policy and rising tariff uncertainty, understanding how small and medium-sized businesses (SMBs) form expectations about future costs and adjust their pricing is critical for assessing how the recently imposed tariffs on US imports could impact consumer prices. To that end, this brief analyzes several waves of a survey of owners and other decision-makers at a nationally representative sample of US SMBs. It focuses on waves conducted during the period of December 2024 to August 2025.

Key Takeaways:

• From December 2024 to April 2025, the share of SMBs expecting larger tariffs increased considerably; expectations about the size of future tariffs also increased over time.
• In the August 2025 survey wave, SMBs whose costs are affected by the new tariffs reported paying an average tariff rate in July 2025 (11.4%) that was nearly double the average rate they paid in January 2025 (6.5%).
• SMBs that believe the new tariffs will persist for a year or longer expect to pass through as much as three times more of their cost increases into consumer prices compared with SMBs that believe the new tariffs will be short-lived.
• A back-of-the-envelope calculation suggests a 0.75 percent near-term increase in core consumer prices stemming from recent tariff increases on directly imported consumer goods.

Good news from America! The American consumer is still spending:

The US economy’s comeback in the second quarter was just revised higher again, and economists estimate that momentum carried on in the third quarter, underscoring the resilience of the world’s largest economy.

Gross domestic product, the broadest measure of economic output, rose at an annualized rate of 3.8% from April through June, the Commerce Department said Thursday in its third and final estimate. That’s significantly higher than the 3.3% rate reported in the second estimate, and well above the 3% initially reported.

GDP was revised higher largely due to new additional data on consumer spending. Personal consumption expenditures rose at an annualized pace of 2.5% in the second quarter, according to the third estimate, up sharply from the second estimate’s 1.6%.
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The Federal Reserve Bank of Atlanta estimates that GDP continued to power through at a robust pace in the third quarter, forecasting third-quarter GDP to register at a solid 3.3% rate.
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Against the odds, retail sales, which comprise a sizable chunk of overall spending, rose 0.6% in August from the prior month, according to Commerce Department data, following July’s 0.6% gain.

Canadian GDP was up for different reasons:

Real gross domestic product grew in July for the first time in four months and by slightly more than expected, suggesting the economy will likely avoid a recession this year as U.S. tariffs batter key Canadian sectors.

Statistics Canada reported Friday that the 0.2-per-cent increase in real GDP was largely driven by growth in good-producing industries. The mining, quarrying and oil and gas extraction sector led growth in July, expanding by 1.4 per cent.
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Motor vehicle parts and motor vehicle manufacturing expanded by 10.5 per cent and 9.1 per cent respectively in July, which coincided with an increase in exports of those goods that month, the Statscan report noted.

However, activity in iron and steel mills and ferro-alloy manufacturing was down by about 25-per-cent since February, before the U.S. imposed a 25-per-cent tariff on steel imports in March.

The industry group in July experienced its steepest decline since April 2020, contracting by 19.1 per cent after U.S. President Donald Trump doubled the tariff rate to 50 per cent in June.

Lisa Cook got some more high-profile support today:

Federal Reserve Governor Lisa Cook has the support of every living former chair of the central bank’s powerful Board in her legal battle with President Donald Trump, who tried to fire her last month based on unproven allegations of mortgage fraud, according to an amicus brief filed to the Supreme Court Thursday.

An appeals court earlier this month kept Cook in her post through a preliminary injunction while her lawsuit challenging Trump’s firing attempt moves forward — just days before the central bank’s September policy meeting. The administration appealed that decision, and is now being considered by the nation’s highest court.

In response to the appeal, Cook on Thursday said firing her would be a “death-knell” for central bank independence, urging the Supreme Court to deny the administration’s emergency request to remove her while the litigation proceeds through the lower courts.

Former Fed chairs Alan Greenspan, Ben Bernanke and Janet Yellen warned against overturning the injunction, stating that it would “threaten” the Fed’s independence of politics and “erode public confidence in the Fed.” The brief was also signed off by some Republicans who once served in high-ranking government roles, such as former Treasury Secretary Henry Paulson and former Council of Economic Advisers Chair Glenn Hubbard.

I have updated the FFN.PR.A and FTN.PR.A posts with the yields as of 2025-9-23.

PerpetualDiscounts now yield 5.71%, equivalent to 7.42% interest at the standard conversion factor of 1.3x. Long corporates yielded 4.86% on 2025-9-17, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) remains at the 255bp reported September 17.

I have updated the post regarding the GWO new issue.

With the new issues from GWO and POW coming out, one has to wonder whether there will be more. But today DBRS rated some sub-debt from Enbridge:

DBRS Limited (Morningstar DBRS) assigned a credit rating of BBB with a Stable trend to Enbridge Inc.’s (Enbridge or the Company) issuance of $1.0 billion, 5.15% Fixed-to-Fixed Rate Subordinated Notes (the Hybrid Notes), due December 17, 2055. Enbridge intends to use the net proceeds from the sale of the Hybrid Notes to repay short-term debt, partially fund capital projects and, if applicable, for other general corporate purposes of the Corporation and its affiliates.

The credit rating assigned to this newly issued debt instrument is based on the credit rating of an already-outstanding debt series of the above-mentioned debt instrument. Please refer to the most recent Morningstar DBRS press release dated June 27, 2025 https://dbrs.morningstar.com/research/457133/ for more information, including all relevant disclosures.

The rating listed above is based on the Final Term Sheet dated September 15, 2025; the Trust Indenture dated October 20, 1997 and information provided by Enbridge to Morningstar DBRS as of September 15, 2025.

Fitch rated it too:

Fitch Ratings has assigned a ‘BBB-‘ rating to Enbridge Inc.’s (ENB) offering of CAD-denominated junior subordinated notes. Proceeds from the offering will be used for existing debt repayment and general corporate purposes. Fitch currently rates ENB’s Long-Term Issuer Default Rating (IDR) ‘BBB+’ with a Stable Rating Outlook.

The ratings reflect the Enbridge family’s large size, diversity, and stability and visibility of expected cash flows. The ‘BBB+’ IDR considers Fitch’s view of the constructive regulation supporting ENB’s various franchises, including natural gas distribution (utility), crude oil transportation and natural gas transmission in Canada and the U.S. Leverage is appropriate for the rating, and Fitch expects it to remain comfortably within the boundaries for the rating over the forecast period.

The Stable Outlook reflects expectations for supportive supply/demand fundamentals underlying the vast majority of ENB’s businesses.

Well, we didn’t need any more Enbridge preferreds anyway! Not that we need more GWO/POW preferreds either, but still!

The FOMC released its statement:

Recent indicators suggest that growth of economic activity moderated in the first half of the year. Job gains have slowed, and the unemployment rate has edged up but remains low. Inflation has moved up and remains somewhat elevated.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty about the economic outlook remains elevated. The Committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment have risen.

In support of its goals and in light of the shift in the balance of risks, the Committee decided to lower the target range for the federal funds rate by 1/4 percentage point to 4 to 4‑1/4 percent. In considering additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities. The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michael S. Barr; Michelle W. Bowman; Susan M. Collins; Lisa D. Cook; Austan D. Goolsbee; Philip N. Jefferson; Alberto G. Musalem; Jeffrey R. Schmid; and Christopher J. Waller. Voting against this action was Stephen I. Miran, who preferred to lower the target range for the federal funds rate by 1/2 percentage point at this meeting.

No surprise in the action; not much surprise that Trump’s … muse? puppet? … dissented dovishly. I’m pleased to see that Waller didn’t join him – Waller is, or was, considered a contender for governor:

Federal Reserve Governor Christopher Waller is emerging as a top candidate to be the central bank’s next chair, Bloomberg News reported on Thursday, citing people familiar with the matter.

Waller has met with members of President Donald Trump’s team, who are impressed with him, though he has not met with the president, Bloomberg News reported. A Fed spokesperson had no comment.

Waller dissented in July as did Bowman, who was recentely elevated to regulatory honcho. As I said at the time, those dissents were justifiable but disquieting; their non-dissents in today’s meeting is a good, though not definitive, sign.

These people are at the top of their profession; I’ve never met them, but can well imagine that their legacy is important to them. Nobody wants to be mentioned in the same breath as Arthur Burns! Except maybe Miran …

The dotPlot is, as always, fascinating:

Matt Egan had a great comment on CNN’s ‘live chat’:

Let’s talk about that dot plot. One dot was conspicuously low. A lone Fed official — this is done anonymously — penciled in sub-3% rates THIS year. We don’t know for sure who but I would bet that official rhymes with “siren.”

The post regarding the POW new issue has been updated.

PerpetualDiscounts now yield 5.67%, equivalent to 7.37% interest at the standard conversion factor of 1.3x. Long corporates yielded 4.82% on 2025-9-17, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now 255bp, a small (and perhaps spurious) widening from the 250bp reported September 10.

Canadian inflation wasn’t as bad as expected:

Canada’s inflation rate rose to 1.9 per cent in August, increasing by less than economists had forecasted and solidifying expectations of an interest rate cut on Wednesday.

Statistics Canada reported on Tuesday that the annual inflation rate rose from 1.7 per cent in July. The acceleration in headline inflation was driven by a smaller annual decrease gasoline prices in August relative to July.
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The Bank of Canada’s key measures of inflation continued to hover around three per cent last month. Meanwhile, inflation excluding gasoline prices rose by 2.4 per cent, down slightly from the previous three months.
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Food prices rose by 3.4 per cent, compared with 3.3 per cent in July. Shelter costs increased at a slower pace of 2.6 per cent, down from 3 per cent the previous month.

And the market reacted:

Credit market-based probabilities of a Bank of Canada rate cut on Wednesday rose following the release of Canadian inflation numbers this morning – which overall were modestly softer than expected.

Based on trading in overnight index swaps markets, traders now see about a 93% chance of a quarter point cut on Wednesday, up from about 87% prior to the inflation report, according to LSEG data.
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Here, in detail, is how implied probabilities of future interest rate moves stood in swaps markets after the inflation report. The current overnight rate is 2.75 per cent. While the bank moves in quarter-point increments, credit market implied rates fluctuate more fluidly and are constantly changing. Columns to the right are percentage probabilities of future rate moves.

Pre-Announcement

Post-Announcement

Erika McEntarfer, former commissioner at the Bureau of Labor Statistics, provided some commentary on her firing:

Her lecture at the Levy Economics Institute at Bard College, her alma mater, comes as questions swirl about the integrity of government data as Trump has sought greater control of the agency and tariffs appear to be hurting the economy.
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“Firing your chief statistician is a dangerous step,” she said. “That’s an attack on the independence of an institution arguably as important as the Federal Reserve for economic stability. It has serious economic consequences, but that they would do this with no warning — it made no sense.”

“Messing with economic data is like messing with the traffic lights and turning the sensors off. Cars don’t know where to go, traffic backs up at intersections,” she said, a nod to the concerns many economists have raised since her firing.

Before her firing, McEntarfer’s biggest concern with the monthly jobs reports and other economic reports the BLS publishes was funding shortfalls that made it harder to conduct surveys that inform the data, she said. That’s been especially true as response rates to the agency’s surveys have fallen. But that has not impacted the accuracy of the data, she said.

“But after the events of the last six weeks, I’m afraid we have to fear for the (data) dependence of the agencies themselves.”
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On Tuesday, McEntarfer said that late-responding firms were the principal reason for the negative revision that preceded her firing. That dynamic was explained by McEntarfer and her staff during their monthly pre-jobs report briefing to the White House.

She told White House economists that revisions as large as the May and June jobs data tend to occur “when the economy slows,” she said. During the briefing, White House officials asked her: Was the skew disproportionately among small firms, and when was the last time this happened?

“It was a pretty broad-based, negative skew,” she said, noting that the last time this happened was in the early months of the pandemic. Businesses were likely responding late to the survey “because they’re just too busy trying to stay alive.”

Quality costs money, Mr. Trump!