by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with news of a massive new command complex being built for the Chinese military — a move the portends further US-Chinese geopolitical and economic tensions over time. We next review several other international and US developments with the potential to affect the financial markets today, including more signs of political and economic change in Germany and a warning from a major hedge fund that the US cryptocurrency market is in a dangerous bubble.

China: According to the Financial Times, the Chinese military is building a massive command center and bunker complex on the outskirts of Beijing. The complex will apparently be some 10 times bigger than the Pentagon and should facilitate China’s effort to better integrate the various branches of its armed forces. The deep bunkers also underline China’s intention to become a more credible nuclear power. In sum, the new facility reflects China’s rapid, on-going military expansion and the likelihood of continuing US-China geopolitical tensions.

German Politics: Ahead of next month’s elections, the center-right Christian Democratic Union this week won parliamentary approval for a nonbinding resolution to drastically restrict immigration, but only with the support of the far-right Alternative for Germany (AfD) party. The move broke Germany’s longstanding taboo against cooperating with the AfD and sets the stage for a possible right-wing coalition after the February 23 elections.

German Economy: German defense contractor Hensoldt, which makes air defense radars, is reportedly negotiating with auto suppliers Bosch and Continental to hire almost 200 of their workers facing layoffs. The talks reflect the changing dynamics in Germany’s industrial sector, where defense firms are booming amid today’s geopolitical tensions and increased defense budgets, while automotive firms are struggling amid stagnating exports and foreign competition. The talks also help affirm our positive view on European defense stocks.

• On a related note, data today showed Germany’s registered unemployment rate rose to a seasonally adjusted 6.2% in January, up from 6.1% in December.
• Excluding the pandemic period, the registered unemployment rate is now at its highest since 2016.

Sweden-Iran: After an anti-Islam campaigner famous for public burnings of the Koran was shot and killed near Stockholm on Wednesday, the Swedish government has indicated it is probing whether the murder was instigated by a foreign power. The most likely government that might attempt such an assassination is probably Iran.

• In any case, if such a connection is confirmed, it would underline the increased aggressiveness of the top authoritarian countries in the China-led geopolitical bloc, including China, Russia, Iran, and North Korea.
• If the murder is linked to a foreign power such as Iran, it would worsen the current geopolitical tensions between Western countries and countries in the China bloc.

Israel-Hamas: While the ceasefire between Israel and Hamas in Gaza continues, Hamas is increasingly making the daily release of Israeli hostages a humiliating, televised spectacle. For example, the militant group is releasing hostages into angry mobs in front of the demolished homes of Hamas leaders killed in the fighting. The tactic creates a risk that Tel Aviv will bring the ceasefire to an end and rekindle fighting around the region.

United States-Canada-Mexico: Even though President Trump yesterday reiterated his intention to slap broad tariffs on imports from Canada and Mexico by Saturday, administration officials are reportedly still talking with Ottawa and Mexico City and may impose only targeted levies. Whether the tariffs are universal or targeted, they could include a grace period before they are formally imposed, and they may rely on existing authorities rather than the novel approaches that officials have floated.

• According to the report, the Mexican government has already agreed to set up a joint task force with the US to tackle cross-border migration and fentanyl trafficking.
• The Canadian government is reportedly still in negotiations with the US to set up a similar task force.

US Fiscal Policy: In the wake of the fatal collision between an American Airlines plane and an Army helicopter in Washington on Wednesday, President Trump yesterday implied that the cause was lax standards and diversity, equity, and inclusion policies under Presidents Biden and Obama. According to Trump, the Federal Aviation Administration under Biden was “actively recruiting workers who suffer severe intellectual disabilities and psychiatric problems and other mental and physical conditions” under DEI initiatives.

• When asked to provide evidence for his assertion, Trump merely replied, “Because I have common sense.”
• Coupled with the new administration’s many executive orders against DEI programs and firings of personnel related to DEI initiatives, the statement suggests that DEI has become an all-purpose epithet to justify personnel or program cuts across government.
• We mention this strictly because it could have implications for investors: It now appears that political rhetoric focusing on DEI complaints could well be a useful signal of where the hammer may next fall in terms of top officials about to be fired, program reductions, or broad layoffs under the new administration.

US Cryptocurrency Policy: In an investor letter, hedge fund Elliott Capital Management warns that cryptocurrencies have become the most dangerous asset bubble in today’s investment frenzy, not only because of the size that the crypto market has attained, but also because of the Trump administration’s support of it. Elliott criticizes crypt assets as having “no substance” and warns that the “inevitable collapse” of the crypto bubble “could wreak havoc in ways we cannot yet anticipate.”

• While it’s true that many assets have extremely high valuations today, it’s notoriously difficult to identify which assets are in a true bubble, and when any such bubble might burst.
• A key issue is whether a retrenchment in the crypto market would spread to other areas of the financial system. A particular risk would be if banks or other traditional parts of the system have provided leverage to crypto buyers. The crypto winter a couple of years ago revealed only limited problems, but we continue to monitor the markets for any sign that such risky linkages have become more significant now.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with several notes on the weak economic situation in Europe, which helped spur the European Central Bank to cut interest rates again today. We next review several other international and US developments with the potential to affect the financial markets today, including a new reform of the pension system in Chile and a review of the Federal Reserve’s decision yesterday to hold US interest rates steady.

European Union: European Commission President von der Leyen yesterday unveiled the bloc’s new “Competitiveness Compass” program, which is aimed at reducing regulations and spurring increased innovation, investment, and economic growth. The plan is geared toward improving the EU’s competitiveness in comparison to the booming but increasingly protectionist US economy and the threatening Chinese economy. The plan particularly aims to boost EU activity in cloud computing and artificial intelligence.

• The plan would also reportedly include “Buy European” provisions for public procurement, much the same as the rules that the US and China have implemented favoring domestic producers.
• That would risk running afoul of World Trade Organization rules. However, given Europe’s need to compete with the US and China, the EU is prepared to take the chance.

Eurozone Economic Growth: Highlighting the broader EU’s economic stagnation, new data shows that the eurozone’s fourth-quarter gross domestic product was flat with the third quarter, short of the expected rise of 0.1% and much weaker than the 0.4% gain in the previous period. Compared with the fourth quarter of 2023, the region’s GDP was up just 0.9%. The weak growth largely stems from tepid corporate investment and a deteriorating trade balance.

 

Eurozone Monetary Policy: Consistent with eurozone’s stagnant economic growth, the European Central Bank today cut its benchmark short-term interest rate to 2.75% from its previous level of 3.00%, as widely expected. That marked the ECB’s fifth rate cut in its last six policy meetings. In addition, since the Fed held its benchmark fed funds rate steady yesterday (see below), the ECB’s move increased the rate differential between the eurozone and the US. The euro is nevertheless roughly flat on the day, trading at $1.0410.

Chile: Both houses of the legislature have now approved a major reform of the country’s pensions system, whose meager payouts helped prompt mass demonstrations six years ago. The reform will boost employer contributions to the system and promote competition between private-sector pension fund managers. The increase in the system’s funds may also help boost activity in the Chilean financial markets.

US Monetary Policy: The Fed yesterday decided to hold its benchmark fed funds short-term interest rate steady at 4.25% to 4.50%. The policymakers also decided to keep reducing the central bank’s holdings of Treasury securities, agency debt, and mortgage-backed obligations. Both decisions were widely expected. Importantly, Fed Chair Powell said in his post-decision press conference that the Fed would need to see “real progress on inflation” or unexpected weakness in the labor market before considering further rate reductions.

• The policy statement and Powell’s press-conference remarks support our view that the monetary policymakers will probably implement only a limited number of rate cuts in 2025. They may even hold rates steady or potentially raise them if inflation pressures rebound.
• In response to the Fed’s action, President Trump castigated the policymakers for keeping interest rates too high, suggesting that he will continue to pressure the Fed for more rate cuts in the coming months, even if they would risk a rebound in inflation pressures.

US Fiscal Policy: The federal government’s Office of Personnel Management has reportedly been surprised that its anti-diversity directive last week has turned up so few employees to discharge. The directive had required agencies to identify all employees working full-time on diversity, equity, inclusion, and accessibility and prepare to fire them. The Department of Veteran Affairs has identified only 60 such employees, and other agencies have identified far fewer. OPM is now expanding its definition of employees subject to the directive.

• The failure to identify legions of DEI workers could mean that officials in the new administration had a false understanding of how many such workers were on the federal payroll. It could also reflect some lower-level officials trying to protect their employees. Perhaps more likely, it could be a combination of such factors.
• In any case, the situation suggests that the new administration may find it harder to purge large numbers of federal workers than it expected, especially given the political and legal issues such an effort could entail.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with new developments related to Chinese artificial-intelligence firm DeepSeek and its market-disrupting new AI model. Importantly, new evidence suggests that DeepSeek’s success may have depended on stolen intellectual property from the US’s top AI developer. We next review several other international and US developments with the potential to affect the financial markets today, including political pressure on the Japanese government to provide more tax breaks and new developments on the Trump administration’s effort to pause federal grants and loans.

DeepSeek and Global Semiconductor Industry: As investors continue to digest the implications of the cheap, powerful new artificial-intelligence model from Chinese firm DeepSeek, the CEO of Dutch semiconductor-equipment giant ASML insisted the development would be positive for chip makers because it would lead to even more demand for their products. The statement has boosted ASML’s stock price by about 8.8% so far this morning, and other European tech stocks have rallied as well.

• The all-in cost of DeepSeek’s new model was almost certainly much higher than reported. Nevertheless, the company’s success does suggest that the future AI industry won’t necessarily involve the super expensive advanced chips and huge electricity requirements that Western firms had been banking on. Thus, much of their AI-related investment to date may not pay off.
• On the other hand, cheaper and easily accessible AI models probably would lead to wider adoption of the technology, increasing the demand for basic chips and potentially boosting productivity across a wide range of industries.

DeepSeek and US-China Relations: OpenAI, maker of the US’s advanced ChatGPT AI model, said it has evidence that Chinese firm DeepSeek used the US company’s proprietary models to cheaply train its own open-source model, in violation of ChatGPT’s terms of service. The Trump administration’s AI czar, David Sacks, had also raised concerns earlier that DeepSeek’s apparent success relied on intellectual property theft from the US, as so many other Chinese technological advancements have.

• If true, DeepSeek’s ability to leverage ChatGPT’s model illustrates how hard it may be for cutting-edge AI firms to maintain their advantage.
• In any case, if DeepSeek illegally used ChatGPT’s intellectual property to gain its edge and wipe hundreds of billions of dollars off the value of key US technology firms, it seems certain that the development will further worsen US-China tensions. For one thing, it would likely encourage the Trump administration to be even more aggressive on imposing trade barriers with China.

Japan: Key opposition parties are reportedly demanding expensive new tax breaks to support Prime Minister Ishiba’s budget for the fiscal year beginning April 1. The Democratic Party for the People is demanding a hike in the amount of income exempt from tax, while the Japan Innovation Party is asking for free elementary and secondary education. The disputes could potentially undermine the minority Liberal Democratic Party/Komeito government’s prospects in the elections expected this summer and/or further worsen Japan’s budget deficit.

United Kingdom: As part of its drive to boost British economic growth, the government of Prime Minister Starmer has announced a series of infrastructure investments, including support for a third runway to ease severe capacity constraints at Heathrow Airport, the country’s largest. The new runway will likely face a long planning period and litigation, but it is expected to boost UK economic growth by more than 0.4% per year when it is finally completed.

United States-Greenland-Denmark: In the first survey of Greenlanders since President Trump expressed his interest in buying the autonomous island from Denmark, some 85% of respondents said they didn’t want to become part of the US. About 9% were undecided, and only 6% wanted Greenland to be bought by the US. The results echo the view of Greenlandic Prime Minister Múte Egede, who has also said his citizens reject the idea of a US takeover.

US Monetary Policy: The Fed will wrap up its latest policy meeting today, with the decision due at 2:00 PM ET. The policymakers are widely expected to hold the benchmark fed funds interest rate unchanged at its current range of 4.25% to 4.50%, but surprises are possible given that the annual rotation of committee members will bring new officials to the panel. Investors will be looking to Chair Powell’s post-meeting news conference for guidance on the future path of rates and for his reaction to President Trump’s demand for rate cuts.

US Fiscal Policy: A federal judge late yesterday afternoon temporarily blocked the Trump administration’s order to freeze the disbursement of federal grants, loans, and other aid, which we described in our Comment yesterday. The injunction lasts until Monday, when an in-depth hearing is scheduled. A key legal issue is whether the president can stop the disbursement of funds appropriated by Congress, which has the power of the purse under the Constitution.

• Separately, to ensure all federal workers are on board with Trump’s back-to-the-office mandate, the administration has offered buyout packages to every full-time job holder. Under the buyout, workers who don’t want to give up remote work and resign by February 6 would be paid through the end of the fiscal year on September 30, with benefits.
• The buyout offer applies to all full-time federal employees except for military personnel, the Postal Service, and those working in immigration enforcement or national security.
• If implemented, the administration expects 5% to 10% of the federal workforce to quit, saving the federal government around $100 billion per year. Of course, the result would likely be a degradation of government services, especially if the offer is taken up disproportionately by the most capable and productive workers, who may have the best prospects in the private sector.
• In any case, if the program is implemented, it could potentially cause at least temporary distortions in the labor market and economic data.

US Labor Market: The National Assessment of Educational Progress from the Department of Education showed that only 67% of US eighth graders were reading at a “basic” or better competency for their grade level in 2024. Only 60% of fourth graders were at that standard. Math scores were flat to slightly better but the nearly continuous slide in reading scores over the last decade raises concern about the quality of the US workforce in the coming years.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with a few observations on yesterday’s rout in Western technology stocks related to artificial intelligence. We next review several other international and US developments with the potential to affect the financial markets today, including signs that China’s property slump is starting to weaken even its strongest developers and a White House order last night that could potentially disrupt federal payments to a wide range of businesses and nonprofits.

Global Technology Stock Sell-Off: Yesterday’s sell-off in Western artificial-intelligence stocks erased some $589 billion of Nvidia’s market value alone. The previously high-flying stock closed down about 17% for the day, and other AI-related firms closed down almost as much. As a reminder, the sell-off was sparked by a realization that Chinese AI firm DeepSeek was able to produce a top AI model without expensive Nvidia chips and far more cheaply than Western firms have been able to create competing models.

• Since AI stocks had gotten so richly valued, they were probably susceptible to a correction at the sign of any bad news. As we’ve written recently, investors had even begun looking at the Magnificent 7 as a sort of safe haven. The reality is that stock prices can be volatile, and while it can be tempting to chase the momentum plays, keeping diversified can be a safer approach.
• Looking forward, it’s probably too early to gauge exactly how DeepSeek or other Chinese AI models could affect the US firms. As the US-China “AI race” heats up, there is a chance that the US government will limit access to Chinese tools for national security purposes. That could leave America’s AI-related firms in pole position to serve the US geopolitical bloc and maybe even beyond, while keeping them out of the China bloc.
• At the same time, even if the US and Chinese AI markets are walled off from each other, investors should remember that increased competition within the US bloc’s market could weigh on profits as the market develops. There are also positive trends in other sectors of the US economy. That’s a key reason why we think investors shouldn’t forget the importance of diversification and the potential for better future performance from smaller cap stocks and value stocks.

United States-China: After years of saying it didn’t have enough data to say whether the COVID pandemic occurred naturally or from a lab leak in China, the Central Intelligence Agency has released an updated assessment saying it now favors the lab-leak theory, although with only a low level of confidence. The reassessment, ordered by former President Biden last year and released by the new CIA director last week, will likely exacerbate US-China tensions and encourage further economic decoupling between the US and Chinese economies.

China: Yesterday, major property developer Vanke, until now considered the most stable of China’s major housing firms, reported a massive fourth-quarter loss of approximately $6.2 billion and announced the resignation of several top officials. Company figures showed the firm suffered a massive drop in new residential sales and falling margins — data that suggests China’s housing crisis has now spread to even its strongest developers. A key question going forward is whether the government will step in to help Vanke stay in business.

United States-India: According to the White House, President Trump has told Indian Prime Minister Modi that he wants New Delhi to buy more US weapons to help rebalance trade between the two countries. The request comes as India, the world’s biggest arms importer, is trying to diversify its buying away from Russia. That creates a potential opportunity for US defense contractors. However, it’s important to note that New Delhi is also trying to expand its own defense industrial base so that it is less reliant on foreign suppliers.

• As we’ve noted previously, President Trump has reportedly told newly confirmed Defense Secretary Hegseth to prepare for smaller defense budgets, potentially presenting a risk for US defense firms.
• However, Trump’s conversation with Modi suggests he may be looking to offset lower US arms orders with increased orders from abroad. That is likely also a reason why Trump is pushing other US allies to spend more for their own defense, since a lot of that new spending could well be channeled to US suppliers.
• We note, however, that many US allies are still resisting increased defense budgets and/or purchases from the US. In Germany, for example, the namesake leader of the radical left-wing Sahra Wagenknecht Alliance has vowed to block any increase in military spending if her party gains representation in the Bundestag in next month’s election. According to opinion polls, the party currently has about 5% support, just enough to enter parliament.

US Monetary Policy: The Fed begins its latest policy meeting today, with the decision due out tomorrow at 2:00 PM ET. The policymakers are widely expected to hold the benchmark fed funds interest rate unchanged at its current range of 4.25% to 4.50%, but surprises are possible given that the annual rotation of committee members will bring new officials to the panel. Chair Powell’s post-meeting news conference will be especially important, as investors will be looking for more guidance on the future path of rates.

US Fiscal Policy: The White House’s Office of Management and Budget last night ordered executive departments and agencies to pause federal grants, loans and other financial-aid programs pending a review by the new administration. Because of the broad nature of the order, departments and agencies are reportedly confused about what disbursements must be stopped and how long they will be frozen.

• Footnotes to the memo exempted Social Security, Medicare, and other payments made directly to individuals.
• However, that would still leave a vast array of federal payments that could potentially be frozen, from small-business loans to highway funding. A disbursement freeze of that magnitude could be disruptive to the economy and undermine business confidence.

US Trade Policy: According to a Financial Times article yesterday, Treasury Secretary Bessent is pushing the Trump administration to back a gradual increase in US import tariffs. Under Bessent’s plan, the universal tariffs would rise 2.5% per month until they reach 20.0%, giving firms more time to adjust and creating the opportunity for the US to strike trade deals with foreign countries. Our latest Bi-Weekly Geopolitical Report discusses how Bessent’s trade policies fit into the overall Trump program of shifting security and prosperity costs to US allies.

US Health Policy: New reports say Robert Kennedy Jr. is struggling to convince senators to confirm him as Secretary of Health and Human Services because of his controversial stand against vaccines and his support for abortion rights. If Kennedy fails to win confirmation in a vote later this week, healthcare stocks would likely rally, at least until a new nominee is named.

US Commercial Real Estate Industry: According to data providers such as MSCI, sales of US office buildings jumped approximately 20% in 2024 to a total of $63.6 billion. Sales are still much weaker than the annual average of $142.9 billion from 2015 to 2019, but the rebound last year provides further evidence that investors have started trying to take advantage of the distressed industry.

• As we’ve noted over the last few months, we are seeing increased evidence that buyers are scooping up properties burdened by excessive debt, high interest rates, and low occupancy rates.
• As companies impose more back-to-the-office policies, the new sales could bode well for office-sector real estate investment trusts (REITs) going forward.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with a discussion of today’s rout in global technology stocks. We next review several other international and US developments with the potential to affect the financial markets today, including more data pointing to sluggish economic growth in China and President Trump’s short-lived tariff hikes against Colombia over the weekend.

Global Technology Stocks: The West’s recently high-flying technology stocks related to artificial intelligence, such as Nvidia and Google, are taking a beating today on news that Chinese firm DeepSeek has developed a powerful AI model that calls into question their investments in the space. In an X post on Friday, well-known Silicon Valley venture capitalist Marc Andreessen went so far as to proclaim, “DeepSeek R1 is one of the most amazing and impressive breakthroughs I’ve ever seen.”

• Importantly, DeepSeek was apparently able to produce its model without having access to the most advanced AI chips from US firms such as Nvidia. Washington has banned selling those chips to China to prevent it from surpassing the US in military and technological capabilities. It now appears that the ban has done little to slow China’s progress in AI.
• In fact, DeepSeek has apparently been able to develop its powerful model for just a small fraction of the cost to develop major AI models in the West.
• Of course, some of DeepSeek’s cost advantage probably reflects subsidies from the Chinese government. Nevertheless, the firm’s success suggests that the enormous AI investments made by the likes of Nvidia, Microsoft, Google, and Meta may be misguided or unjustified.

China: The official purchasing managers’ index for manufacturing fell to a seasonally adjusted 49.1 in January, short of expectations and below the 50.1 reading in December. Like all major PMIs, the Chinese one is designed so that readings over 50 indicate expanding activity. The reading for January suggests Chinese factory activity is now contracting again after three straight months of modest expansions. The data underscores the continued slowdown in Chinese economic growth due to problems such as excess capacity and high debts.

India-China: In a potential new source of tension over the coming years, the Indian government has voiced its concerns about a major new hydroelectric dam that China plans to build on the Yarlung Tsangpo River in Tibet, upstream from India. The proposed dam would be three times bigger than China’s Three Gorges dam, which is currently the world’s largest hydroelectric facility. New Delhi fears that the dam will lead to water shortages in India, or even floods if it is ever damaged in an earthquake.

Lithuania-Estonia: Officials in both Lithuania and Estonia have become the latest to endorse President Trump’s demand that the non-US members of the North Atlantic Treaty Organization hike their defense spending to at least 5% of gross domestic product. At those levels, countries such as Poland, Lithuania, and Estonia would be spending well above the US defense burden of about 3% of GDP. The spending hikes could have a major impact on those countries’ fiscal policies and help validate our positive view on non-US defense stocks.

United States-European Union: US electric-vehicle firm Tesla’s Shanghai subsidiary has sued the EU over the anti-dumping tariffs the bloc imposed on Chinese-made EVs late last year. Since Tesla is controlled by “first buddy” Elon Musk, it’s possible that the US government might ultimately side with Tesla and put pressure on the EU to drop its tariffs. Such a move could further threaten the EU’s domestic auto production and weaken the general EU economy.

United States-Denmark-Greenland: According to European diplomats briefed on the matter, a call last week between President Trump and Danish Prime Minister Frederiksen went very badly, with Trump insisting that the US should acquire the autonomous Danish island of Greenland and Frederiksen insisting it isn’t for sale. The “horrendous” tenor of the call has sparked concern in European capitals that Trump is seeking to forcibly expand US territory at their expense, much as Imperialist Russia did in the 1800s and Nazi Germany did in the 1900s.

• Our analysis suggests that the strategic and economic assets offered by Greenland are minimal compared with the potential fracturing of the US alliance system if Trump and his officials continue to strongarm Denmark for a sale of Greenland.
• Although Greenland has deposits of several important mineral resources, the ability to exploit those resources is constrained by factors such as the island’s harsh climate, limited infrastructure, and tiny available workforce.

United States-Colombia: To retaliate for the Colombian government’s refusal to accept US military deportation flights, President Trump yesterday announced 25% tariffs on all imports from Colombia and threatened to double them to 50% in one week. Trump also ordered financial sanctions on Colombia and imposed a travel ban and revoked the visas of Colombian government officials. By the end of the day, however, the White House said Colombia had agreed to all of the president’s terms and the tariffs and sanctions would be held in reserve.

• After a week in which the financial markets were encouraged by the lack of any new tariffs from the Trump administration, it now seems clear that he was perhaps just waiting for the right chance to make an example of a country, even if it’s a traditional ally such as Colombia. Even though the Colombia tariff hikes were ultimately canceled, they could well rekindle broader tariff concerns and weigh on the markets on Monday.
• Colombia’s top exports to the US include crude oil, coffee, and flowers. Given that flowers have such a short shelf life and are shipped shortly before they’re needed, the Colombia tariffs could have produced big price increases for Valentine’s Day roses in the US if they had not been rescinded.

US Monetary Policy: The Federal Reserve holds its latest policy meeting this week, with its decision due on Wednesday at 2:00 PM ET. The policymakers are widely expected to hold their benchmark fed funds interest rate unchanged at its current range of 4.25% to 4.50%. That would make Fed Chair Powell’s post-meeting news conference even more important, as investors will be looking for more guidance on the future path of rates.

US Immigration Policy: The Justice Department yesterday said it had begun a multiagency immigration enforcement operation in Chicago, although the number of arrests so far is uncertain. Meanwhile, Illinois Gov. JB Pritzker said his state would cooperate with federal authorities in deporting undocumented immigrants convicted of crimes or with pending deportation orders, but he said state law enforcement would not take part in targeted raids or profile people in the state who might be without documents.

• Similar to the situation with import tariffs, the Trump administration’s inaction on illegal immigrants in its first week may have created a false sense of security and complacency among immigrant communities and those who employ them.
• The Chicago crackdown on immigrants therefore may rekindle concerns that Trump’s immigration policies will exacerbate today’s labor shortages, especially in sectors such as construction and hospitality.

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