Daily Commentary

MarketMinder’s View: This is all about a political proposal, so please keep in mind we favor no politician nor any political party, assessing talk and developments solely for their potential market effects. Last week, President Donald Trump proposed capping US credit card rates at 10% for one year, touted as a plan to soften the blow of high prices. It is, in our view, no coincidence this comes in a midterm election year and as Trump’s approval rating is low—this is exactly the kind of talk that tends to cause stocks to grind early in election years, even if the legislation to make this happen never emerges from committee. But if it did emerge, we doubt the effects would be good for many consumers. “Richard Hunt, executive chairman of the Electronic Payments Coalition (EPC), told reporters that EPC's analysis of a 10% credit card cap found that between 82% and 88% of credit card holders would see their card eliminated or their credit limit drastically reduced, with low to moderate income consumers most affected.” The study argues Americans with credit scores below 740 would see effects, which extend to curtailed rewards, too—especially if today’s talk of cutting the swipe fees businesses pay follows. Ultimately, the 10% limit is just a price control—interference with free markets. It also doesn’t account for the fact the interest received goes to fund banks’ reserves against loss, interest costs and overhead. A 10% limit could cut deeply into that. So you can choose to not believe the precise estimates here from an industry lobby—they are probably overstated. But don’t presume the effects won’t follow: Price controls routinely create shortages by limiting the markets’ ability to respond. Here those shortages would likely be credit card access for lower- to middle-income Americans or those with lower credit scores. Add the interchange limits to this and rewards cards could see big changes.

MarketMinder’s View: With all due respect, this is a very flawed look at today’s US consumer price index (CPI) report for December, which showed headline prices rose 2.7% y/y again, matching November’s rates. Core prices also rose 2.6% for the second-straight month. Where we quibble with this piece is in its skeptical and warning attitude toward future price shifts. It cautions that a “burst of inflation” could come from tariffs, as firms work through lofty inventory—which is hugely unlikely. Firms aren’t likely to burn through inventory concurrently, and there is little sign tariffs have had much effect on prices yet. Which is logical, considering they channel demand more than they hit prices economywide. Tariffs aren’t good, but they aren’t hugely inflationary, either—especially considering the effective rate is so much lower than people feared last April. That isn’t all. It harps on high prices as hammering households, which may be so. But that is all about past inflation, which isn’t likely to reverse. Price levels stem from inflation, not the other way around. And for all the talk of shutdown-related distortions herein, the fixation on housing costs misses a point or two: One, in the real world, rents and mortgage costs don’t fluctuate month-to-month. The Bureau of Labor Statistics’ estimates of these are just guesses—and owners’ equivalent rent (what data nerds project you would pay to rent a home you own)—is a fiction anyway. So set all that chatter aside. Instead, zoom out: CPI trended between 2.3% and 3.0% all year. That range is right in line with the long-term average—and the Fed’s ability to tweak it lower at the margins is super limited. All in all, fixating on CPI and inflation is, at this point, fighting the last war. You have to look forward and not backward to properly assess economic and market risks. This isn’t it.

MarketMinder’s View: This piece echoes the thoughts of many financial pundits, we suspect, in offering surprise at the lack of reaction in virtually any corner of markets after the news broke over the weekend that the US Department of Justice was investigating the Fed for alleged false statements made by Fed Chair Jerome Powell to Congress. As this notes, it looks like an escalation in the Trump administration’s efforts to put Fed policy under its thumb, eradicating Fed “independence.” So why so little shock or reaction? We agree with one piece of this—that Fed independence is really a continuum, not a singular truth. All, and we mean all, Fed officials are political animals. So the question really boils down to whether monetary policy is being set on political whims to curry voters’ favor or not. To date, there is no evidence it is—or soon will be. But this column also misses a few crucial facts. One, markets pre-price widely watched worries. The administration and Fed have been squabbling for over a year. This is the latest in a long run of news on that front—it isn’t shockingly new. Two, it may have the reverse effect. As we noted yesterday, the administration’s push may lead Fed Chair Jerome Powell to stay on as governor after his term as chair ends in May. If so, Trump would have fewer seats to fill on the Federal Open Market Committee, the 12-member board that votes on monetary decisions. And the officials that are there may see this effort as an affront. Now, if they did, note: That would be a political decision. But it suggests the risk of inflation or monetary error really didn’t change much in the last few days.