This YouTube video (James Helliwell) reviews why the US Federal Reserve cut interest rates in 2025 and examines 10 key macro indicators to judge the economy and asset prices. The speaker walks through surveys (Philly Fed, ISM, NFIB), housing and home-builder sentiment, initial jobless claims, consumer sentiment, the yield curve, commodity and industrial-price indices, and PCE/core PCE inflation—concluding that weaker housing, rising unemployment claims, and soft commodity/industrial activity justified the cut even as core inflation remains ~3%. A second speaker cautions against market timing and endorses a consistent, stock‑picking portfolio approach.
Chapters
The US has just cut interest rates for the first time this year. Lots of people were calling for it, but ultimately, what does it mean going forward? Here are the 10 key indicators to understand not only where we're at, but likely where we're headed and therefore the price of everything. So let's begin with a look at the chart. So here you can see the cut that's just taken place. There were some cuts at the back end of last year, but this is the first of 2025. But the reason that they've held off is that Trump's tariffs are at odds with the Fed's view of inflation. So that's why they've been held high for so long. But it marks the end of what was the fastest and farthest series of hikes in a generation. The first indicator is from the Philadelphia Fed, the Philly Fed New Orders Index. So they go and poll business leaders in corporate America, the big blue chips, and ask them whether or not things are improving based on the last month. When the index is below zero, it's ominous. When it's above zero, it's positive, and what we can see is that it's around zero. The momentum in terms of the change over the last couple of months is negative, but broadly speaking, it's neutral. So there's not a lot to be gleaned from this. The ISM Manufacturing Survey is a composite of about 10 different subcomponents. Employment conditions, new orders being the one that we're looking at, inventories and so on. New orders tend to turn first. Again, it's not giving us a bullish or a bearish signal, it's just in the middle of the range. Looking to the headline index, it's a similar story. So there's nothing really to be gleaned from sentiment amongst big businesses. But one of the less commonly looked at measures is arguably the more comprehensive representation of what's going on in corporate America. And that's the NFIB Small Business Optimism Index. Small businesses make up the majority of corporate America, certainly in terms of hiring. So it's an incredibly important survey. And what we can see here is that sentiment is actually on the rise. So this looks pretty positive. So I wonder whether small business owners are less anxious about tariffs, with them not being multinationals. In terms of the comments here, which are provided by trading economics, labor quality remained the top concern. It's still hard for companies to find the talent that they need to staff small businesses in America, So things don't look too bad. I'm yet to see A reason for Jerome Powell's move. But this is where things change. One of the most important sectors in the US economy housing. Now what we can see here is that it's basically the mirror opposite of what interest rates have been doing. Rates began to go up in March 2022 and they peaked in July 2023. If we look at where things came off, this is the point where interest rates began to go up. Basically the peak in home builder sentiment as rates were held at that high level following the very rapid series of hikes that has led to sentiment basically just going sideways ever since. So this isn't purely about tariffs. This is very much about the level of interest rates too high for too long. The number of home builders having to cut prices is as broad as it was during the COVID pandemic. The demand just isn't there. And, and also in terms of project costs, it's a hell of a lot more expensive for them to operate. So that's why they're having to resort to promotions to move things on. So that tells us a different story to tariffs. Now this is the one that Jerome Powell has cited specifically in his comments following the cut as the reason why he went ahead and moved. Now his exact words were that he can no longer refer to the labor market as very strong. Now this data tends to be quite volatile and what it is is the number of new claims. So people signing on for the first time for unemployment benefits and it's the highest number, I think in probably about three years the rate of unemployment could begin to move higher, which the initial jobless claims basically foreshadows. So when we look at consumer sentiment, we need to take this with a pinch of salt because it tends to follow what's already happened to the stock market. When prices are higher, it means that we feel more confident because we have greater equity in our houses, our stock portfolios, our pensions ultimately and therefore consumers are more inclined to commit to bigger purchases. The reason it's significant to me right now is that when we look at consumer sentiment, it's well below the sort of 90, 95 level, which is usually positive negative, but the momentum is also negative and it's been coming off again this month. So why is that especially seeing as that the stock market, just look at this chart, is at an all time high. The fact that this is diverging makes me pay attention. It's an ominous sign. Gains in the stock market, the wealth effect is not enough to overwhelm the key issue here. So when you look into the respondents comments it says 60% of respondents still cited tariffs as a key issue. So are interest rate cuts necessarily going to resolve this? So let's move on to the yield curve. Now this is basically how the entire financial system operates. Banks borrow short term to lend long term. And the difference between the two rates is represented here. When the economy is healthy, when money is flowing under normal conditions, the yield curve will be above zero, but below zero there's a so called inversion and that's when things are not behaving in a typical manner. It's been inverted for quite a long time, actually since the middle of 2022. It's now crossed positive and it's steepening again. This is a very clear warning signal of recession. We saw how weak things were in the housing market and we can look to commodities for a real time price indication of sentiment. You can see the same story here. We had the boom in the pandemic. Obviously house prices were going crazy. Supply and availability had dried up. And then as rates began to increase, the demand for construction materials, including lumber, specifically for housing, big A frames and so on, collapsed. So does this suggest that we need rate cuts? Yeah, it probably does. It says that activity's on its arse now. Similarly, you can look at the BLS Raw Industrial Commodities index. So this doesn't include lumber, but it's all kinds of other random things like cotton, burlap, rubber, zinc, tin. I think key inputs for the broader American economy. And it tells us the same thing. It's come off and it's gone sideways ever since, again suggesting that interest rates are in a place that warranted that cut. Now finally, when it comes to the inflation picture, the pressure has been ticking up a little bit in the Fed's preferred measure, the pce. And this would be bad news entering into a cutting cycle because as interest rates go down, you don't have control over inflation. If anything, you're at risk of stoking inflation. You just got to assume that the general slowdown in the economy is enough to overwhelm through lower activity, lower demand. That'll put more of a dampening effect on prices overall. So this is a little bit of a concern. But more broadly, focusing on core inflation, this still excludes food and energy, but it gives us an understanding of where the less volatile so stickier and slower moving price pressures are coming from. This hasn't been ticking up and it's around 3%. So there's a little bit of leeway. I don't see as much reason for the Fed to hold off from cutting rates, as we saw with core pce. So there is some leeway here. So. So that's a whistle stop of the charts, the key macro indicators that inform my view of the world and what comes next.
But that doesn't mean that we should.
Necessarily rush out to try and time.
The market and play the macro and buy bonds. Because I can tell you that in my experience, as I mentioned at the beginning, is both a stock picker and also a guy that lived and breathed global macros, a strategist. Some of the smartest thinkers that I ever worked with made for the worst investors and some of them didn't invest at all. Maybe they were smart ones as they understood the limitations. Much of this is mental masturbation. I hate to say it, but it's true. And it's for that reason that I'm going to continue to run my portfolio in exactly the same way. I gave up on market timing a.
Couple of years ago.
Believe it or not, this is the first time that I've looked at the macro charts since I've been on this desert island of Bali. So, just like my old boss used to say, if ever he was on.
A desert island and he wanted to know what was going on in the.
World, you look at a chart, the ISM, or possibly the yield curve, I've just shown you all of the key indicators I used throughout my career to arrive at the same conclusion. Despite the noise that you'll see back and forth on social media all day long and arguably in the Wall Street Journal, Financial Times, my conclusion is ever buy great companies and do nothing? If you want to learn exactly how I do it, you'll find a link beneath this video. And in the meantime, why not check out this one, which I think you're gonna love. Safe.
