Wall Street Breakfast The stock market remains undefeated
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May 11, 2025 
Barry Ritholtz, co-founder and CIO of Ritholtz Wealth Management, dives into the hot rhetoric between Powell and Trump regarding inflation and monetary policy. He explains the complexities of the Federal Reserve's inflation target and how tariffs complicate economic stability. Ritholtz also discusses the influence of presidential decisions on market dynamics and investor sentiment, emphasizing the need for clearer communication from policymakers to reduce uncertainty and better navigate today's turbulent market.
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Fiscal Stimulus Drives Inflation Trends
- Inflation peaked in June 2022 and dropped from 9% to 2.5%, driven initially by monetary policy and massive fiscal stimulus.
- The 2% inflation target is arbitrary, originating from 1980s New Zealand, and lacks solid economic basis according to former Fed vice chair Roger Ferguson.
Tariffs Undermine Rate Cuts
- Tariffs that raise prices directly conflict with the Fed's ability to cut interest rates without causing recession.
- Powell's Fed can't cut rates unless high tariffs push prices and unemployment much higher, which is counterproductive.
Markets Hate Sudden Tariff Surprises
- The Fed communicates interest rate intentions well in advance to avoid market surprises.
- Tariffs introduced abruptly caused market shocks because prices couldn't adjust in time, hurting market stability.