Plus, the mood at the Fed and tariff uncertainty.
This week, our country has been focused on the heartbreaking Los Angeles wildfires. Widespread evacuations have been ordered and as many as 10,000 structures have been destroyed. At least 10 have died and the California National Guard has been deployed to fight the most destructive fires ever to hit Los Angeles County. Outgoing President Biden has pledged full federal funding for the next 180 days, though his remaining time in office is less than two weeks. Economic losses are estimated to be over $50 billion and counting, marking one of the worst natural disasters in the history of the U.S.
Opening the year with terrorist attacks and a natural disaster has rattled investors, especially in a moment of major political transition. As we await the inauguration of President-elect Trump on January 20, this week came the news that, after nearly 10 years at the country’s helm, Canadian Prime Minister Justin Trudeau has resigned as leader of the ruling Liberal Party. Trudeau’s latest crisis was sparked by the sudden resignation of his finance minister Chrystia Freeland amid a dispute over how best to handle Trump’s threatened trade tariffs.
Evidence is mounting about how uneasy officials are feeling about those tariffs, as demonstrated by the release of the December 17–18 Federal Open Market Committee (FOMC) meeting minutes.
Federal Reserve officials described “upside risks” to inflation, with many noting that the “disinflationary process may have stalled temporarily or noted the risk that it could.” The minutes also reported that “Almost all participants judged that upside risks to the inflation outlook had increased. As reasons for this judgment, participants cited recent stronger-than-expected readings on inflation and the likely effects of potential changes in trade and immigration policy.”
As far as the pathway for future rate cuts, officials noted, “The Committee was at or near the point at which it would be appropriate to slow the pace of policy easing.” Following 100 basis points of rate cuts since September, officials stated that the federal funds rate was “significantly closer” to the neutral rate.
Speaking of political transitions, Vice Chair for Bank Supervision Michael Barr announced he will step down from his role as the top banking regulator at the Fed on February 28, as speculation grew that President Trump would seek a replacement. He will, however, remain on the board, as his term does not expire until 2026.
According to a statement from Barr, “the risk of a dispute over the position could be a distraction from our mission. In the current environment, I’ve determined that I would be more effective in serving the American people from my role as governor.” Barr had been pushing for a range of stricter rules on the nation’s biggest banks, including bank capital hikes, merger and acquisition approvals, and a stronger supervisory program following the failures of Silicon Valley Bank and First Republic Bank in 2023.
This morning’s jobs report was a blockbuster, showing nonfarm payrolls rose by 256,000 in December, well surpassing the 165,000 jobs expected and marking a nine-month high. For the full year, the U.S. economy added 2.2 million jobs in 2024, down from the 3 million in 2023, but still above the 2 million created in 2019. The three industry groupings that typically drive job-market strength—education and health care, leisure and hospitality, and government payrolls—led the way. Retail jobs were also notably higher, while construction and manufacturing were weak. The unemployment rate dropped from 4.2% to 4.1%, and wage growth was 3.9% year over year.
While this is a signal of strength for the economy, markets were not pleased by this number, as it reduces pressure on the Fed to cut interest rates. This dynamic, in combination with the ongoing challenges in California, has investors feeling uneasy with market valuations sky high.
Thank you for your interest in our weekly investment commentary. Our thoughts are with everyone impacted by the wildfires in California. Your team is here and ready to help you however they can in this moment of need and beyond. You can find a list of resources available to L.A.-area residents here and here. If you’re watching this disaster unfold and want to help provide relief, please speak to your team for assistance with a charitable gift by calling 833.RWA.PLAN (833.792.7526).