Finance
Powell may have a hard time avoiding Trump’s ‘Too Late’ label even as Fed chief does the right thing
U.S. Federal Reserve Chair Jerome Powell speaks during a press conference following a two-day meeting of the Federal Open Market Committee on interest rate policy in Washington, D.C., U.S., May 7, 2025.
Kevin Lamarque | Reuters
History suggests that President Donald Trump’s new “Too Late” nickname for Federal Reserve Chair Jerome Powell has a strong chance of coming true, though he’d hardly be alone if it does.
After all, central bank leaders have a long history of being too reluctant to raise or lower interest rates.
Whether it was Arthur Burns keeping rates too low in the face of the stagflation threat during the 1970s, Alan Greenspan not responding quickly enough to the dotcom bubble in the ’90s, or Ben Bernanke’s dismissal of the subprime housing prices as “contained” and not lowering rates prior to the 2008 financial crisis, Fed leaders have long been criticized as slow to act absent compelling data showing them something needs to be done.
So some economists think Powell, faced with a unique set of challenges to the Fed’s twin goals of full employment and low inflation, has a strong chance of wearing the “Too Late” label.
In fact, many of them think nothing is exactly what Powell should do now.
“Historically, go back and look at any Federal Reserve, and I’m going back into the ’70s, the Fed is always late both ways,” said Dan North, senior economist at Allianz Trade North America. “They tend to wait. They want to wait to make sure that they won’t make a mistake, and by the time they do that, usually it is too late. The economy is almost always in recession.”
However, he said that given the volatile policy mix, with Trump’s tariffs threatening both growth and inflation, Powell has little choice but to sit tight absent more clarity.
Powell is in a no-win situation, with threats to both sides of the Fed mandate, “and that’s why he’s doing the exact right thing at this moment, which is nothing, because one way or another it’s going to be a mistake,” North said.
Trump wants a cut
Though Trump said the economy probably will be fine no matter what the Fed does, he has been badgering the central bank lately to cut rates, insisting that inflation has been slayed.
In a Truth Social post after the Fed decision this week to keep rates unchanged, Trump declared that “Too Late’ Jerome Powell is a FOOL, who doesn’t have a clue.” The president declared there is “virtually NO INFLATION,” something that was true for March at least when the Fed’s preferred inflation gauge came in unchanged for the month.
However, the president’s tariffs have yet to be felt in the real economy, as they are barely a month old.
Recent economic data do not indicate price spikes nor a perceptible slowdown in economic activity. However, surveys are showing heightened worries in both the manufacturing and service sectors, while consumer sentiment has soured, and nearly 90% of S&P 500 companies mentioned tariff concerns on their quarterly earnings calls.
At this week’s post-meeting news conference, though, Powell repeatedly voiced confidence in what he called a “solid” economy and a labor market “consistent with maximum employment.”
No ‘pre-emptive’ cuts
The 72-year-old Fed chair also dismissed any idea of a pre-emptive rate cut, despite what sentiment survey data is indicating about current conditions.
“Powell offered two reasons for not being in a hurry. The first – ‘no real cost to waiting’ – is one he may live to regret,” Krishna Guha, head of global policy and central bank strategy at Evercore ISI, said in a client note. “The second – ‘we are not sure what the right thing will be’ – makes more sense.”
Powell has his own particular history of being late, with the Fed reluctant to hike when inflation began spiking in 2021. He and his colleagues labeled that episode “transitory,” a call that came back to haunt them when they had to institute a series of historically aggressive hikes that still have not brought inflation back to the central bank’s 2% target.
“If they’re waiting for the labor market to confirm whether they should cut rates, by definition they’re too late,” said Joseph LaVorgna, chief economist at SMBC Nikko Securities and a senior economic advisor to Trump in his first term. “I don’t think the Fed is being forward-looking enough.”
Indeed, if the Fed is using the labor market as a guide, it almost certainly will be behind the curve. An old adage on Wall Street says, “the labor market is the last to know” when a recession is coming, and history has been fairly consistent that job losses generally don’t start until after a downturn has begun.
LaVorgna thinks the Fed is hamstrung by its own history and will miss this call as well, as policymakers unsuccessfully try to game out the impact of tariffs.
“We’re not going to know if it’s too late until it’s too late,” he said. “Economic history combined with current market pricing suggests there’s a real risk the Fed will be too late.”
Investors always pay close attention to bonds, and what the latest movement in prices and yields is saying about the economy. Right now, the action is telling investors to stick to the shorter-end of the fixed-income market with their maturities.
“There’s lots of concern and volatility, but on the short and middle end, we’re seeing less volatility and stable yields,” Joanna Gallegos, CEO and founder of bond ETF company BondBloxx, said on CNBC’s “ETF Edge.”
The 3-month T-Bill right now is paying above 4.3%, annualized. The two-year is paying 3.9% while the 10-year is offering about 4.4%.
ETF flows in 2025 show that it’s the ultrashort opportunity that is attracting the most investors. The iShares 0-3 Month Treasury Bond ETF (SGOV) and SPDR Bloomberg 1-3 T-Bill ETF (BIL) are both among the top 10 ETFs in investor flows this year, taking in over $25 billion in assets. Only Vanguard Group’s S&P 500 ETF (VOO) has taken in more new money from investors this year than SGOV, according to ETFAction.com data. Vanguard’s Short Term Bond ETF (BSV) is not far behind, with over $4 billion in flows this year, placing with the top 20 among all ETFs in year-to-date flows.
“Long duration just doesn’t work right now” said Todd Sohn, senior ETF and technical strategist at Strategas Securities, on “ETF Edge.”
It would seem that Warren Buffett agrees, with Berkshire Hathaway doubling its ownership of T-bills and now owning 5% of all short-term Treasuries, according to a JPMorgan report.
Investors including Warren Buffett have been piling into short term Treasuries.
“The volatility has been on the long end,” Gallegos said. “The 20-year has gone from negative to positive five times so far this year,” she added.
The bond volatility comes nine months after the Fed’s began cutting rates, a campaign it has since paused amid concerns about the potential for resurgent inflation due to tariffs. Broader market concerns about government spending and deficit levels, especially with a major tax cut bill on the horizon, have added to bond market jitters.
Long-term treasuries and long-term corporate bonds have posted negative performance since September, which is very rare, according to Sohn. “The only other time that’s happened in modern times was during the financial crisis,” he said. “It is hard to argue against short term duration bonds right now,” he added.
Sohn is advising clients to steer clear of anything with a duration of longer than seven years, which has a yield in the 4.1% range right now.
Gallegos says she is concerned that amid the bond market volatility, investors aren’t paying enough attention to fixed income as part of their portfolio mix. “My fear is investors are not diversifying their portfolios with bonds today, and investors still have an equity addiction to concentrated broad-based indexes that are overweight certain tech names. They get used to these double-digit returns,” she said.
Volatility in the stock market has been high this year as well. The S&P 500 rose to record levels in February, before falling 20%, hitting a low in April, and then reversing all of those losses more recently. While bonds are an important component of long-term investing to shield a portfolio from stock corrections, Sohn said now is also a time for investors to look beyond the United States with their equity positions.
“International equities are contributing to portfolios like they haven’t done in a decade” he said. “Last year was Japanese equities, this year it is European equities. Investors don’t have to be loaded up on U.S. large cap growth right now,” he said.
The iShares MSCI Eurozone ETF (EZU) is up 25% so far this year. The iShares MSCI Japan ETF (EWJ) Japan ETF is up 25% over the last two years.
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