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Fed has a tough balance of risk here with inflation and employment, says Jefferies' Richard Fisher
11/4/2025, 9:12:53 PM
Economic Summary
- Labor market is noisy: reduced labor supply, pandemic overhiring, and recent job shedding coexist, making interpretation of job growth and productivity difficult.
- AI has promised productivity gains but largely hasn't delivered cash-flow or profit improvements yet; McKinsey finds ~80% of firms report no meaningful benefit, delaying broad corporate margin relief.
- Corporate margins face pressure from tariffs and other cost increases, leaving firms to either pass costs to customers or cut costs (including layoffs) to protect profitability.
- The Fed faces a tight balance of risks with a divided committee; Powell appears cautious, inflation remains above 3%, and the Fed may pause to assess incoming data before further policy moves.
- Policymakers increasingly rely on private, high-frequency data (e.g., Waze, shopping center traffic) alongside official statistics to assess real-time economic activity, while manufacturing indicators remain weak.
Bullish
- AI promises future productivity gains that could lift margins and reduce headcount costs.
- Private, real-time data sources like Waze (Alphabet) give firms and policymakers better activity tracking.
Bearish
- AI has not yet translated into cash-flow or profit gains for most firms, per McKinsey.
- Tariffs and other input-cost pressures are squeezing margins, forcing layoffs or passing costs to customers.
- Manufacturing activity is weak and has been in recessionary territory, per ISM signals.
Bullish tickers
GOOGL
GOOGL
Bullish
Waze and other Alphabet-owned data sources provide valuable real-time activity signals; long-term AI productivity gains could benefit Alphabet's ad and cloud businesses.
Bearish
AI investments have not yet produced broad cash-flow improvements, and margin pressures from tariffs could weigh on advertising and services revenue.
MCKINSEY
Bearish
McKinsey survey cited that roughly 80% of companies see no immediate cash-flow or profit boost from AI, signaling slower near-term corporate benefits.
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