Strength in the Storm: Navigating Fed Policy and Global Market Shifts - 8/25/25

In this episode of Paramount Wealth Perspectives, host Chris Coyle and Chief Investment Officer Scott Tremlett unpack Jerome Powell’s latest remarks and what they mean for markets. From the Fed’s balancing act between sticky inflation and a slowing labor market, to the credibility challenges of shifting policy in an election year, we explore the forces shaping monetary policy.

We also dive into the impact of tariffs on consumer prices, the growing risk of stagflation, and how global central banks are moving at a different pace than the Fed. Scott shares how investor psychology is influencing equities, bonds, and cash positioning—and why staying disciplined through volatility is key.

Whether you’re focused on Fed decisions, market rotations, or the long-term impact of AI on corporate earnings, this episode offers insights to help investors navigate uncertainty with confidence.

Transcript

Chris Coyle: 0:00

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Hello everyone. Welcome to Paramount Wealth Perspectives, your go-to podcast for the latest updates on global markets and current economic events. This is your host, Chris Coyle. I'm the marketing director and a financial advisor here at Paramount Associates Wealth Management. And today I'm joined by Scott Tremlett, chief Investment Officer here at Paramount Associates Wealth Management. Let's start where the markets are focused. Chair Powell's latest remarks. He struck a cautious tone saying tariffs are pushing up prices, but also suggested that a rate cut could be on the table as soon as September. What's your take, Scott? Thanks, Chris. Well, Powell is definitely walking a very narrow path. On one side, inflation remains sticky because tariffs are feeding directly into consumer and producer prices. On the other hand, the labor market is clearly losing steam. Job gains slowed sharply in. In prior months were revised downward. What's tricky here is that the participation rate is following, particularly in July, so the smaller pool of workers could be masking some of the weakness underneath Powell's comments reflect that tension. The Fed doesn't want to overreact to temporary shocks, but it also can't afford to fall behind if the economy weakens further. That's the balancing act, but what about their credibility? How important is the Fed's reputation at this moment? It's critical. The Fed is judged not only on its results, but also on how consistent and believable its policy framework appears after keeping rates higher for longer. Powell doesn't want to signal panic by cutting too aggressively at the same time waiting too long could repeat last summer's mistake when they underestimated how quickly the labor market was cooling. So credibility. Isn't just about fighting inflation. It's about convincing markets that the Fed can respond nimbly to both inflation and growth risks. It seems like there's a political layer here, isn't there? Exactly. Tariffs are political decisions first and economic realities Second, the Fed doesn't set trade policy, but has to live with the consequences. Powell can't ignore the fact that tariff related inflation is different from wage driven or demand-driven inflation. Rising rates won't undo tariffs, but if households start believing those higher prices are permanent inflation expectations rise, and that's the Fed's nightmare. Add in the political pressure of an election cycle. Impala's trying to stay above the fray. While keeping the Fed's independence intact. I see. And how does this compare to what Central Banks abroad are doing? There's a sharp contrast in Europe and parts of Asia. Fiscal spending is offsetting trade headwinds and central banks are already signaling, they're closer to the. And of their cutting cycles. The US is unique in juggling both strong fiscal stimulus and heavy tariff pressures. That means the Fed has less room to maneuver. If Powell cuts too soon, he risks fueling inflation. If he waits too long, he risks tipping the economy into a harder slowdown than necessary. The diversions makes the Fed's path both more complicated and more critical to the global markets. Let's talk about investor psychology. How are the markets interpreting Powell's comments? Markets are hypersensitive to fed language. When Powell hinted at a potential cut. Equities rallied into the weekend, especially small caps and cyclical sectors. Investors wanna believe the Fed will step in if conditions worsen, but there's caution to longer term bond yields remain elevated. Long-term bonds act like kind of a scoreboard for inflation expectations. When yields climb, it's often a sign. Investors think prices will stay higher for longer. This reflects skepticism today that inflation will fall quickly. So we're seeing this tug of war optimism around cuts versus realism about sticky inflation. That's uncertainty alone and that's keeping volatility high. I see. And some economists are warning about stagflation a mix of slowing growth and persistent inflation. Do you see that as a risk at all? It's definitely on the radar. Uh, growth is slowing. The labor market is softening, and yet prices are still being pushed higher by tariffs. That's a stagflation setup. Now we're not. In the 1970s. Productivity gains innovation and fiscal spending are cushions today, but if tariffs keep inflation elevated. While hiring weakens further, Powell may be forced to choose between stabilizing prices and protecting jobs. That's the stagflation trap, and it's why his cautious tone matters so much. From my conversations, I know that everyday households. The Fed can feel distant. How do these decisions hit people directly? Look Chris, it really shows up everywhere. Mortgage rates, credit card costs, auto loans are all influenced by Fed policy. Right now, mortgage rates are still high, keeping pressure on the housing market. Credit card rates have jumped in recent years weighing on consumers. If the Fed does cut rates, households could see some relief. But it will really come gradually. On the other side, savers have benefited from higher yields and money market funds and CDs, so the Fed's moves are not just abstract. They touch nearly every corner of family budgets. It's worth keeping in mind. The Fed doesn't cut rates because everything's great. They usually do it when they see trouble ahead, and that's why markets sometimes take a cut as a warning sign. Not just good news. I agree. And Powell often repeats that the Fed is that quote unquote, data dependent. How should we interpret that phrase? In practice, data dependence means they aren't committing to a preset course. Every jobs report, every inflation print, every consumer spending. Could tilt the debate one way or another. It's a way of saying, we'll adjust as the facts adjust, but it's also a communication strategy By staying vague, Powell preserves flexibility. The risk is that the markets over-interpret each piece of data leading to swings and expectations. That's part of why volatility has been so pronounced, because data dependence, lease room. For interpretation. We've talked about monetary policy, but what about fiscal policy? How does government spending and borrowing interact with what the Fed is trying to do? Well, fiscal policy is playing a big role right now with deficit spending, subsidies and industrial programs pumping money into the economy. Demand is getting a boost. That's good for growth, but it also means more government borrowing, which pushes long-term rates higher again. So in a sense, Powell's swimming upstream. If fiscal keeps running hot, the Fed has to work even harder to cool down inflation. And globally, how does Fed moves spill over into other markets? Can you please provide an example or two? Well fed policy sends shockwaves really worldwide. A rate cut could weaken the dollar, giving emerging markets some breathing room on debt repayments, but staying tighter for longer keeps the dollar strong. Which pressures countries that borrow in dollars. That and can lead to capital outflows from their markets. In Asia, for example, policymakers are watching the Fed closely because their own currencies and trade balances are really sensitive to US policy. So Powell's words don't just move Wall Street, they move exchange rates, commodity flows, and capital globally. Now, let's shift gears slightly. How are these fed dynamics showing up in markets right now? Well, you can definitely see it in positioning. Equities overall are holding up, but beneath the surface there is rotation. Small caps rallied strongly last week, while large tech names pulled back. Investors are cautious. They're holding more cash because yields are attractive and liquid while shying away from long-term bonds that are vulnerable to. Higher government borrowing and inflation risk. It's a market that doesn't want to bet too heavily on one outcome until the Fed's direction is really clear. Yeah, certainly. And what about on the sector side? Well, I feel as if technology still has momentum, but valuations are definitely rich and investors are more selective. International equities, especially in Europe and emerging markets look more reasonably priced, but risks do remain there as well. Commodity demand in Australia is soft and China's housing sector is still a drag. And the Fed's decisions aren't just domestic. They spill across global sectors and capital flows. Since you mentioned tech, let's talk about ai. How is this way of changing the calculus for investors? Well, AI is really a double-edged sword. For some software companies, it means fatter margins and new revenue streams. Think co-pilots, workflow automation, faster upgrades, but it also threatens incumbents because startups without legacy systems can scale fast, and even large corporations may build ai. Solutions in-house. What's interesting is the potential shift in pricing models. The old per user subscription might give way to more of a usage based fees. If AI lets firms accomplish this with fewer employees, that could reshape how investors value these companies. Finally, let's bring this back to individual investors. With all this volatility, what missteps are people making currently? A common mistake is waiting for the all clear before investing. Markets often rise amid uncertainty, so staying out. Can mean missing gains. Another is parking too much in short-term vehicles like CDs safe, but they don't keep pace with long-term growth. And a third mistake is trying to time the market. Investors jump in and out on headlines, but history shows it's staying invested that really builds wealth. Absolutely that is a common mistake. So how should investors balance short-term volatility with long-term confidence? Well, short-term, Chris will really always feel noisy. Powell's, every word, tariff negotiations, labor market data. These all drive headlines and daily market swings, but over longer Horizon. The market tends to reward discipline. That means diversification, staying invested through cycles and not letting fear dictate decisions. The Fed can influence conditions, but no single policy decision changes. The fundamental principle, long-term investors benefit most by keeping perspective and staying patient to close. If you had to sum up the current economic landscape in one theme. What would it be? I, I guess I'd call it having strengthened the storm. The Fed is under pressure to prove it, manage both inflation and growth without losing credibility. The labor market is bending but not breaking. Tariffs are stressing. Global trade but not collapsing it. And investors, whether institutions or households are adapting by staying flexible. Success in this environment is about being ready to pivot without abandoning long-term goals. Well, thank you, Scott, for taking the time to share your thoughts. Thank you to our audience for tuning in. And remember to please submit your questions via email to general@paramountassoc.com. For now, stay informed. Stay ahead and join us next time for more key updates shaping the global economy.