The week began with the worst cross-asset selloff since Liberation Day in April 2025, the day President Trump announced his global tariff policy. Investor anxiety was triggered by Trump’s push to take control of Greenland, a NATO ally, after he threatened tariffs against other NATO nations. Said tariffs would start at 10% on February 1 and rise to 25% on June 1 if a deal was not reached. Preparing for his trip to the World Economic Forum in Davos, Switzerland, Trump commented that he would seek immediate talks with European leaders on the American acquisition of Greenland, “but won’t use force.” He also referred to Tuesday’s selloff as “peanuts.” By the end of the week, markets had calmed but not fully recovered their losses after Trump told CNBC that he’d walk back the tariffs because he now has “the concept of a deal” in place. Trump then vowed “big retaliation” if European countries began to sell U.S. assets in response to his new tariff proposal. As of this writing, the S&P 500 is on track for its first back-to-back weekly loss since June. 

While the Supreme Court failed to deliver a ruling on Trump’s tariffs, which could signal difficulties forming a majority on either side, they did hear arguments on Trump’s attempt to fire Fed Governor Lisa Cook over mortgage fraud allegations. With the concurrent DOJ grand jury subpoena of Fed Chair Jerome Powell, both situations could have significant implications of a perceived independence of the U.S. Central Bank. Lev Menaud, a law professor at Columbia University, commented, “This is a case that’s about much more than Cook. It’s about whether President Trump will be able to take over the Federal Reserve Board in the coming months.” Menaud is ostensibly referring to the idea that if Trump can fire Cook, he could fire Powell as well. The FOMC holds their regularly scheduled meeting next week. Interest rate futures currently show a 2.8% probability for a cut at this meeting with a 45% chance for a 25-basis point cut in June; followed by less than a 40% chance for any additional cut during the remainder for 2026. Anecdotally, the likelihood for additional rate cuts this year keeps getting pushed farther out with each passing week. 

The final reading of Q3 GDP was upwardly revised from 4.3% to 4.4%, which appears to be good news on the surface. However, Moody’s Analytics report on that and its underlying consumer spending component showed that the K-shaped recovery of the last few years might be getting worse. Personal and real personal spending numbers appeared strong enough at 0.5% and 0.3%, respectively, versus the respective estimates of 0.3% and 0.1%. Parsing through the data, Moody’s noted that 59% of all consumer spending now comes from the top 20% of income earners. Mark Zandi, chief economist at Moody’s, commented, “The economy is narrowly perched on the backs of the well-to-do.” He added that the widening inequality helps explain deteriorating consumer sentiment among Americans for the past few years. 

KEY INDICATORS THIS WEEK

Inflation – The delayed CORE PCE reports for October and November matched consensus estimates at 2.7% and 2.8%, respectively. 
Yield Curve – The yield curve continues to steepen with the spread between the 2- and 10-year notes at its highest level since early 2022. 
Natural Gas – Futures rose 75% over three sessions ahead of this weekend’s expected winter storm.
Next Week – Fed week! With an updated dot plot and Summary of Economic Projections.