Unadorned Notes: February 18-21, 2025
Fed Signals Caution on Rate Cuts; U.S. Home Sales Decline in January; Alibaba Surges on AI, Earnings; Trump Expands Control Over Agencies; Trump Administration Backs Stricter Antitrust Rules
Economics, Finance, and Business
Fed Signals Caution on Rate Cuts: The Federal Reserve’s January 2025 meeting minutes indicated broad consensus among officials to maintain the current federal funds rate at approximately 4.3%, citing economic uncertainty. Chair Jerome Powell emphasized the need for “real progress on inflation” or labor market weakness before considering further rate reductions. Despite stronger-than-expected inflation in January, analysts anticipate the Fed’s preferred measure of core inflation to have eased slightly. Officials highlighted risks from consumer demand, trade, and immigration policy changes, with concerns that tariffs could elevate costs. Investors largely expect the Fed to keep rates steady through mid-2025, with the next policy meeting scheduled for March 18–19, 2025.1
U.S. Job Market Remains Steady: Initial unemployment claims rose by 5,000 to 219,000 for the week ending February 15, 2025, indicating continued labor market stability despite federal layoffs and spending cuts. While the Trump administration’s workforce reductions have yet to impact national employment data, economists anticipate potential ripple effects in the private sector, particularly in regions with high concentrations of federal workers. The Philadelphia Fed’s survey showed rising input costs for manufacturers, while broader business activity weakened. Economists predict slower job growth later in 2025, with upcoming data on continuing claims providing further insights into labor market conditions.2
U.S. Business Activity Slows Sharply: U.S. business activity nearly stalled in February 2025, with S&P Global’s Composite PMI falling to 50.4, the lowest since September 2023, amid concerns over tariffs and federal spending cuts. The services sector contracted for the first time in over two years, while manufacturing activity rose slightly as firms stockpiled supplies ahead of potential tariff-driven cost increases. Consumer sentiment fell to a 15-month low, with inflation expectations rising to 4.3% for the next year, prompting concerns at the Federal Reserve about prolonged inflationary pressures. Housing market struggles persisted, as higher mortgage rates and potential tariff-driven increases in building costs kept affordability challenges elevated.3
U.S. Home Sales Decline in January: Existing-home sales in the U.S. fell nearly 5% in January 2025 to an annualized rate of 4.08 million, though they remained slightly higher year-over-year, according to the National Association of Realtors (NAR). The median home price reached $396,900, the highest January figure on record, marking 19 consecutive months of annual price increases. Mortgage rates, averaging around 7%, continue to challenge affordability, contributing to longer selling times, with properties staying on the market for an average of 41 days. Regional trends varied, with the Northeast and Midwest seeing modest year-over-year sales gains, while the South remained flat and the West saw slight improvement. Housing inventory increased 16.8% from January 2024, but supply remains below the level needed for a balanced market.4
Walmart Warns of Slower Growth: Walmart projected slower sales and profit growth in 2025, citing consumer frustration with inflation and concerns over new tariffs imposed by President Donald Trump. The retailer’s stock fell 6% following the announcement, dragging down the Dow by over 1%. While Walmart remains resilient, executives acknowledged that tariffs on Chinese goods and steel imports could impact pricing and supply chains. Consumer sentiment has weakened, with 62% of Americans believing Trump has not done enough to lower everyday costs. Despite inflation concerns, Walmart expects price increases to stabilize at 1%–2% for the year.5
CEO Confidence Rises Amid Uncertainty: CEO confidence in the U.S. economy reached a three-year high in early 2025, contrasting with declining consumer sentiment driven by inflation concerns and new trade policies. The Conference Board’s survey showed 44% of CEOs believed economic conditions had improved, while only 11% saw deterioration, reflecting optimism about anticipated business-friendly policies under President Donald Trump. Economists caution that CEO optimism may be premature, as uncertainty over tariffs and regulatory changes could still impact growth. The upcoming Consumer Price Index report on March 12 will provide further insight into inflation trends and economic stability.6
U.S. Equity Funds See Inflows: U.S. equity funds recorded $1.59 billion in net inflows for the week ending February 19, 2025, marking their first gain in three weeks amid easing inflation concerns and strong corporate earnings. The S&P 500 reached a record high of 6,147.45, supported by better-than-expected fourth-quarter results from 76% of reporting companies. Multi-cap and large-cap funds saw inflows, while small- and mid-cap funds experienced outflows of $1.62 billion and $718 million, respectively. Bond funds attracted $8.62 billion in net inflows for a seventh consecutive week, with strong demand for government, investment-grade, and loan participation funds. Meanwhile, U.S. money market funds saw $14.11 billion in net outflows, the third decline in four weeks.7
Alibaba Surges on AI, Earnings: Alibaba’s U.S.-listed shares rose 8% after reporting stronger-than-expected quarterly earnings, with revenue reaching RMB 280.2 billion ($38.4 billion). The company highlighted triple-digit growth in AI-related product revenue and announced plans to invest heavily in cloud and AI infrastructure over the next three years. CEO Eddie Wu stated that AI-driven growth in its Cloud Intelligence Group would accelerate, though near-term profitability may be impacted. Investor sentiment toward Chinese tech stocks has improved following government support measures and a meeting between Chinese leader Xi Jinping and tech industry leaders. Additionally, reports that Ryan Cohen increased his Alibaba stake to 7 million shares contributed to the stock’s recent 60% rally.8
Berkshire Hathaway Trims Bank Stakes: Berkshire Hathaway reduced its Bank of America stake to 680 million shares by December 2024, down from over 1 billion six months earlier, cutting its ownership below 9%. The firm also sold significant portions of its Citigroup, Capital One, and Nu Holdings stakes while exiting Ulta Beauty and two S&P 500 ETFs. Warren Buffett’s company made only one new investment, establishing a $1.2 billion stake in Constellation Brands, while increasing holdings in Domino’s Pizza, Pool Corp., and Occidental Petroleum. Despite stock sales exceeding purchases for the ninth consecutive quarter, Berkshire’s U.S. stock portfolio rose to $267 billion due to market gains. The company’s cash reserves surpassed $300 billion, reflecting Buffett’s cautious approach amid high valuations and attractive Treasury yields.9
Nissan Eyes Tesla Investment Deal: Nissan shares surged 9.5% after reports that a Japanese group proposed Tesla invest in the automaker’s U.S. plants amid its search for a new partner following a failed Honda merger. Industry analysts expressed skepticism, citing Tesla’s recent sales decline and lack of interest in legacy manufacturing assets.10 Meanwhile, Tesla is exploring entry into the Indian market but faces challenges such as high tariffs, poor infrastructure, and dominance by local automakers. President Donald Trump criticized Elon Musk’s potential investment in India, arguing it would be unfair to U.S. manufacturing. Despite speculation, Tesla has yet to confirm plans for either a Nissan investment or Indian production.11
Musk Unveils Grok 3 AI: Elon Musk’s xAI introduced Grok 3, an updated AI model claiming superior performance in math, science, and coding over competitors like OpenAI’s GPT-4o and Google’s Gemini. The model, built with 10 times the computing power of its predecessor, is available to X’s “Premium+” subscribers and through a standalone app. Musk announced upcoming features, including a “voice mode”, and described Grok 3 as a beta version that will improve over time. Meanwhile, Musk continues his rivalry with OpenAI, recently leading a $97 billion bid to acquire the company, which its board rejected. xAI plans to open-source Grok 2 once Grok 3 is fully stable in the coming months.12
U.S. Politics, Policies, and Geopolitics
Senate Passes $340 Billion Budget: The Republican-controlled Senate passed a $340 billion budget resolution, allocating funds for immigration enforcement, energy production, and military expansion, in a 52-48 vote. The measure now moves to the House, where GOP lawmakers will debate a competing version that includes $4.5 trillion in tax cuts and a $4 trillion debt limit increase. President Donald Trump has endorsed the House plan as “one big, beautiful bill”, though Senate leaders view their version as a fallback if negotiations stall. The budget resolution, passed through reconciliation, allows Republicans to bypass the 60-vote threshold, though deep spending cuts remain a point of contention. Vice President JD Vance indicated a final package could pass by May or June 2025, though disagreements over Medicaid and fiscal reductions may complicate the timeline.13
McConnell to Retire After Term: Sen. Mitch McConnell, the longest-serving Senate leader in history, announced he will not seek re-election in 2026, ending a four-decade career. As majority leader from 2015 to 2021, he blocked former President Barack Obama’s Supreme Court nominee, secured three conservative justices under President Donald Trump, and passed the 2017 tax cuts. Known for his staunch defense of the Senate filibuster, McConnell frequently clashed with Trump, particularly over foreign policy and tariffs. His leadership shaped the modern Republican Party, steering it toward judicial conservatism while later breaking with Trump on key issues, including aid to Ukraine. Facing health challenges and estrangement from the party’s MAGA wing, McConnell pledged to use his remaining term to uphold Senate traditions.14
Pentagon Ordered to Cut Budget: Defense Secretary Pete Hegseth directed the Pentagon to draft plans for 8% annual budget cuts over the next five years, reallocating funds to missile defense, border security, and military modernization. The directive, part of the Trump administration’s broader cost-cutting efforts, coincides with a separate order to reduce the Pentagon’s civilian workforce, overseen by Elon Musk’s U.S. DOGE Service. The proposed cuts, if enacted, would be the largest since 2013, drawing criticism from lawmakers concerned about military readiness and geopolitical stability. Notably, the plan prioritizes Indo-Pacific Command while omitting similar protections for European, Central, and Africa Commands, raising concerns about U.S. commitments abroad. Defense stocks fell following the announcement, and bipartisan opposition in Congress is expected to challenge the plan.15
Trump Expands Control Over Agencies: President Donald Trump signed an executive order granting the White House greater authority over independent regulatory agencies, requiring them to submit regulations for presidential review and coordinate policies with the administration. The order exempts the Federal Reserve but extends control over agencies such as the SEC and FDIC, raising concerns about political influence in financial and labor regulations. Legal experts suggest the move challenges longstanding limits on executive power, potentially conflicting with the 1935 Supreme Court ruling in Humphrey’s Executor v. U.S.. The directive aligns with Project 2025, a conservative blueprint advocating for dismantling independent agencies, and could face legal challenges. With a 6–3 conservative Supreme Court majority, experts predict the court may uphold Trump’s expanded executive authority over regulatory bodies.16
Trump Administration Backs Stricter Antitrust Rules: The Trump administration affirmed its commitment to the 2023 merger guidelines developed under Biden-era antitrust officials Lina Khan and Jonathan Kanter, signaling continuity in stricter merger enforcement. Federal Trade Commission Chair Andrew Ferguson and Acting Assistant Attorney General Omeed Assefi instructed staff to evaluate mergers using these guidelines, with recent challenges to major deals like Hewlett Packard–Juniper Networks reinforcing this stance. This shift reflects bipartisan consensus on curbing corporate consolidation, marking a departure from decades of lax enforcement influenced by Chicago School economics. The move has drawn criticism from Wall Street and corporate law firms while earning support from anti-monopoly advocates. With mergers down 30% in January 2025, the decision is expected to reshape future antitrust enforcement and corporate strategy.17
Trump, Zelenskyy Clash Over War: Tensions escalated between U.S. President Donald Trump and Ukrainian President Volodymyr Zelenskyy, with Trump calling Zelenskyy a “dictator without elections” and Zelenskyy accusing Trump of believing Russian disinformation. The Trump administration has shifted its approach, holding direct talks with Russia in Saudi Arabia while excluding Ukraine, sparking concerns about an unfavorable peace deal for Kyiv. Russian President Vladimir Putin welcomed the discussions, calling them a step toward restoring U.S.-Russia relations, while European leaders defended Zelenskyy, emphasizing Ukraine’s constitutional wartime election delays. Meanwhile, Trump urged Ukraine to negotiate quickly, claiming the war could have been avoided, while Zelenskyy countered that Ukraine’s resistance remains strong with significant domestic and European support. Russian state media celebrated Trump’s remarks, as Ukraine’s forces continued to struggle against Russia’s military advances on the battlefield.18
U.S., Ukraine Negotiate Minerals Deal: The U.S. and Ukraine are negotiating a critical minerals agreement, following tensions between Presidents Donald Trump and Volodymyr Zelenskyy over Ukraine’s role in peace talks with Russia. An initial U.S. proposal granting 50% of Ukraine’s mineral revenue was rejected for violating Ukrainian laws, leading to a revised offer that includes future security assurances. Trump has sought $500 billion in rare earths, though Ukraine lacks major reserves, and some deposits remain under Russian control. Treasury Secretary Scott Bessent criticized Zelenskyy for rejecting the deal at the Munich Security Conference, straining U.S.-Ukraine relations further. Despite Trump’s continued attacks on Zelenskyy, the U.S. sees the minerals agreement as key to binding Ukraine economically while shifting more security responsibilities to Europe.19
