Unadorned Notes: February 8-12, 2025
Inflation Rises More Than Expected; Strong Q4 Earnings Exceed Expectations; India Weighs U.S. Oil Imports; U.S. Imposes Steel, Aluminum Tariffs; Fired Watchdogs Sue Trump Administration
Economics, Finance, and Business
Inflation Rises More Than Expected: The U.S. Consumer Price Index (CPI) increased 0.5% in January 2025, exceeding forecasts and pushing the annual rate to 3.0%, up from 2.9% in December 2024. Core inflation, which excludes food and energy, rose 3.3% year-over-year, reinforcing concerns about persistent price pressures. The hotter-than-expected data led markets to adjust expectations, with traders now anticipating the Federal Reserve will delay interest rate cuts until at least September 2025. U.S. Treasury yields climbed, stock futures declined, and the dollar strengthened as investors reassessed monetary policy outlooks. Analysts noted that the Fed is likely to maintain its cautious stance, emphasizing the need for inflation to move closer to its 2% target before easing policy.1
Powell Stresses Caution on Rate Cuts: Federal Reserve Chair Jerome Powell told Congress that the U.S. economy remains strong, with unemployment at 4% and inflation still above the Fed’s 2% target. He reaffirmed that interest rate decisions will be based on economic data rather than political pressure, despite President Donald Trump’s calls for lower rates. Powell declined to comment on trade policy but noted that tariffs and other policies could influence inflation and growth. The January 2025 CPI report has reduced the likelihood of near-term rate cuts as the Fed maintains restrictive monetary policy to control inflation. Investors now expect only one rate cut this year, likely in October, as the Fed evaluates economic conditions.23
Strong Q4 Earnings Exceed Expectations: Fourth-quarter earnings for S&P 500 companies have surpassed expectations, with 77% reporting higher-than-anticipated earnings per share. Year-over-year earnings growth has reached over 16%, the highest since late 2021, while revenue beats have been weaker, with only 63% exceeding forecasts. Key drivers include economic growth, AI-related productivity gains, and deregulation, though tariffs pose an uncertainty for future performance. Financial stocks have seen significant inflows, marking the largest surge since 2009, driven by strong bank earnings and attractive valuations. Executives have expressed concerns about the Trump administration’s trade policies, with tariff mentions in earnings calls at a decade-high level.4
European Stocks Outperform Amid Uncertainty: European equities have surged in early 2025, with Germany’s DAX up over 9% and France’s CAC 40 gaining 8%, outperforming the S&P 500. Investors are shifting toward undervalued European markets amid lackluster U.S. tech earnings, expectations of rate cuts by the European Central Bank, and hopes for geopolitical stability. Many European companies benefit from a strong U.S. economy and a rising dollar, which boosts their overseas revenues. Despite President Donald Trump’s tariff threats, markets have remained optimistic, viewing them as a negotiating tactic rather than an imminent risk. However, analysts caution that if tariffs are implemented, they could reverse the rally in European stocks.5
Business Confidence Wanes Under Trump: Corporate sentiment has declined as inflation concerns and trade uncertainties weigh on executives, with the U.S. deals market seeing its slowest January in a decade. President Donald Trump’s shifting tariff policies on Canada and Mexico have left businesses reassessing supply chains and pricing strategies rather than pursuing major acquisitions. Regulatory expectations were shaken after the Justice Department moved to block Hewlett Packard Enterprise’s $14 billion acquisition of Juniper Networks. While overall deal activity remains subdued, hostile takeovers have surged, with companies like Cintas and QXO launching aggressive bids. Analysts remain optimistic that mergers and acquisitions will pick up later in 2025 as market conditions stabilize.6
Chinese Traders Unfazed by Tariffs: Businesses in Yiwu, China’s largest wholesale export hub, have largely dismissed concerns over President Donald Trump’s new tariffs, citing prior preparations and adaptability. Some firms, like Beisi Group, have mitigated risks by expanding operations to the United States, while others plan to absorb costs or pass them on to consumers. Trump’s repeal of the “de minimis” rule is expected to impact platforms like Temu and Shein, but traders remain confident in sustained demand. China is preparing counter-tariffs of up to 15%, raising fears of an escalating trade war between the two economies. Despite the tensions, Yiwu vendors report steady orders and believe the U.S. will struggle to find alternative suppliers.7
India Weighs U.S. Oil Imports: India is considering increasing energy imports from the United States ahead of Prime Minister Narendra Modi’s visit and talks with President Donald Trump. While Indian refiners prioritize Middle Eastern suppliers, factors such as freight costs and discounts could influence purchases from U.S. producers. Meanwhile, India is ramping up domestic oil exploration, with state-run ONGC and Oil India investing in deepwater projects and seeking international partners. The country’s unexplored basins, including the Andaman Sea and Mahanadi, hold an estimated 22 billion barrels of oil, attracting interest from global energy firms. Modi has emphasized the need for investment in India’s energy sector to enhance self-sufficiency and economic growth.8
Musk Bids for OpenAI Control: Elon Musk and a consortium of investors have offered $97.4 billion to acquire OpenAI’s nonprofit arm, aiming to block its transition to a for-profit entity. OpenAI CEO Sam Altman swiftly rejected the bid, stating the company was not for sale and mocking Musk’s offer on social media. Musk, who co-founded OpenAI but later launched xAI, has criticized the company’s shift toward commercialization and previously sued Altman over alleged contract violations. The bid complicates OpenAI’s fundraising efforts, as SoftBank is in talks to invest at a $300 billion valuation. Analysts suggest Musk may need to leverage Tesla or SpaceX assets to finance the acquisition, while OpenAI’s board must evaluate its fiduciary responsibilities.9
Meta Lays Off 3,600 Employees: Meta has begun performance-based layoffs affecting 5% of its workforce, or approximately 3,600 employees globally. Impacted U.S. workers were notified via email and received severance packages including 16 weeks of pay plus two weeks per year of service. The layoffs targeted employees with lower performance review scores. Affected employees, including recruiters and product designers, have shared their experiences on social media, expressing concerns about reputational damage. CEO Mark Zuckerberg previously stated the cuts were necessary to improve efficiency and workforce quality.10
U.S. Politics, Policies, and Geopolitics
U.S. Imposes Steel, Aluminum Tariffs: President Donald Trump announced a 25% tariff on all steel and aluminum imports, ending exemptions for Canada, Mexico, and the European Union. The move aims to boost domestic production but has sparked criticism from global leaders, with the EU and Canada vowing retaliatory measures. Analysts remain uncertain whether the tariffs are a bargaining tactic or a long-term policy shift. U.S. manufacturers warn of rising costs, while Trump insists the measures will ultimately benefit the economy. Similar tariffs imposed in 2018 led to higher steel and aluminum prices, raising concerns about broader economic impacts.11
Trump Questions U.S. Debt Accuracy: President Donald Trump suggested that the U.S. debt, currently at $36.2 trillion, may be overstated due to fraudulent Treasury payments. His administration, led by Elon Musk’s Department of Government Efficiency (DOGE), has been reviewing federal spending, prompting legal challenges over access to sensitive financial systems. A federal judge temporarily blocked Musk’s team from accessing Treasury payment systems, citing privacy and security risks. Meanwhile, Trump’s proposed tax cuts could further increase the debt, while his attempts to freeze domestic aid have faced court challenges but still disrupted funding for key projects.12
Biden, Democrats’ Security Clearances Revoked: President Donald Trump revoked security clearances for several senior Biden administration officials, including former Secretary of State Antony Blinken and National Security Adviser Jake Sullivan. The move follows his earlier decision to revoke Joe Biden’s clearance and includes officials involved in past investigations against him, such as New York Attorney General Letitia James and Manhattan District Attorney Alvin Bragg. James dismissed the revocation as a distraction and vowed to continue legal challenges against Trump’s policies. Other affected officials have not yet responded publicly.13
Fired Watchdogs Sue Trump Administration: Eight inspectors general fired by President Donald Trump have filed a lawsuit seeking reinstatement, arguing their removals violated federal law protecting oversight officials from political interference. The lawsuit, part of a broader wave of legal challenges against Trump’s early executive actions, claims the dismissals undermined government accountability and transparency. The affected IGs, who oversaw key agencies including Defense, State, and Veterans Affairs, allege they were given no valid reason for their terminations and that Congress was not properly notified. Former Merit Systems Protection Board Chair Cathy Harris has also sued, arguing her removal was unlawful and jeopardizes protections for federal employees.14
Trump Weakens Anti-Corruption, Consumer Protections: President Donald Trump signed an executive order halting enforcement of the Foreign Corrupt Practices Act (FCPA), arguing it hinders U.S. businesses abroad. The Justice Department will review the law over 180 days, raising concerns about increased corruption risks in international dealings. Meanwhile, the administration suspended operations at the Consumer Financial Protection Bureau (CFPB), with acting chief Russell Vought cutting its funding and ceasing regulatory oversight. Critics warn that these actions dismantle consumer protections and remove safeguards against financial misconduct. The moves have sparked legal challenges from agency workers and unions, with lawsuits filed to prevent further rollbacks.1516
Trump Pushes Ukraine Peace Talks: President Donald Trump announced plans to meet with Russian President Vladimir Putin in Saudi Arabia to negotiate an end to the nearly three-year Ukraine war. Both Russia and Ukraine confirmed separate calls with Trump, with Ukrainian President Volodymyr Zelenskyy expressing hope that U.S. influence could push Russia toward peace. Defense Secretary Pete Hegseth outlined the administration’s stance, calling for increased European defense spending and rejecting Ukraine’s NATO membership as a realistic outcome. He also stated that restoring Ukraine’s pre-2014 borders was unrealistic, signaling a shift in U.S. policy. European leaders are closely monitoring developments ahead of the Munich Security Conference, where top U.S. officials will discuss foreign policy priorities.17
Trump Threatens Hamas Over Hostages: President Donald Trump warned that “all hell is going to break out” if Hamas does not release all remaining hostages by Saturday, putting the fragile ceasefire at risk. Hamas announced it would delay the next hostage exchange, accusing Israel of violating the agreement by restricting movement and delaying aid. Israeli Prime Minister Benjamin Netanyahu held an emergency meeting, while Defense Minister Israel Katz ordered the military to prepare for possible escalation. Families of hostages have urged Trump to ensure the ceasefire continues, fearing a resumption of violence.18
Trump Proposes U.S. Control of Gaza: President Donald Trump announced plans for the United States to take over Gaza while relocating Palestinians to Jordan and Egypt, a proposal widely condemned as destabilizing. During a meeting with Jordan’s King Abdullah II, Trump insisted his plan would benefit Palestinians, despite warnings that forced displacement could constitute ethnic cleansing. Israeli Prime Minister Benjamin Netanyahu aligned with Trump’s demand that Hamas release all hostages by Saturday or risk a renewed military offensive. Jordan and Egypt have strongly opposed the relocation plan, with Abdullah reaffirming his stance against the displacement of Palestinians.19