Calmer Now

Inflation and labor markets are both moderating

Succinct Summary: Earnings season began last week and it appears that the bank stress from a few weeks ago has calmed down. The economy also appears to be slowing. Inflation and labor markets are both moderating. For now, the slowdown is small though and it doesn't appear to be enough for the Fed. Rates may stay higher for longer than people think.

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Macro

Bank stress has calmed down 

"You've already seen things calm down quite a bit, particularly in deposit flows. [Warren Buffett] was on TV talking about that he would bet $1 million, I don't know if you saw that, that no depositor will lose money in America. [he] is a very bright man. So this crisis is not '08. It will pass." - JPMorgan Chase (JPM 0.00%↑) CEO Jamie Dimon

“Regarding the deposit inflows, at the firm-wide level, average deposits were down 3% QoQ while end-of-period deposits were up 2% QoQ, implying an intra-quarter reversal of the recent outflow trend as a consequence of the March events" - JPMorgan Chase (JPM 0.00%↑) CFO Jeremy Barnum

"In the past few weeks, we have seen deposit flows stabilize across banks and as a result, the combined usage of the discount window and the new program has moderated." - Federal Reserve Governor Christopher J. Waller

"We did see some moderate inflows from the few specific banks that have been highlighted in the press, but those inflows have abated." - Wells Fargo (WFC 0.00%↑) CEO Charles W. Scharf

But the economy may also be slowing

"We are now in our fifth month of ISM below 50 and it had ticked down in March. And we are seeing that in our business, particularly in the fastener side, the OEM piece of the business." - Fastenal (FAST 0.00%↑) CEO Dan Florness

"After starting the year on a strong footing, Bank of America aggregated credit and debit card spending per household moderated in March to 0.1% YoY growth, the slowest pace since February 2021." - Bank of America (BAC 0.00%↑)

Inflation is showing signs of slowing

"Certainly, it's moderated some Brian. But it's certainly not back to where it was before the inflationary trend started...certainly, inflation is one of those characteristics that's been a bit stubborn." - Constellation Brands (STZ 0.00%↑) CEO Bill Newlands

"We think that we have done what we had to do last year to reflect inflationary pressure in most of our product lines. This year, we'll be more cautious when it comes to price increases." - LVMH (LVMHF) CFO Jean-Jacques Guiony

"So in terms of overall price increases, we believe we're through most of the significant price increases." - WD-40 (WDFC 0.00%↑) COO Steven Brass

"We don’t have a great deal of visibility as it relates to how much pricing are we going to have to give away to customers because of contracts and things of that nature, right? And so my comment, I think, was if demand softens and there is a lot of pressure to sort of adjust price based on contracts, etcetera, then maybe our pricing is down a percentage point. If that doesn’t occur because it hasn’t to this point, maybe it’s up a percentage point." - Fastenal (FAST 0.00%↑) CFO Holden Lewis

Hiring is showing signs of slowing too

"We see signs of moderation that we've been seeing progress since the fall after Q1, but we don't see any significant signs of slowing." - Paychex (PAYX 0.00%↑) CFO Efrain Rivera

"...when you look at where the PMI is, when you look at the trend in industrial production, we needed to be looking forward and really have a plan to be cautious about hiring." - Fastenal (FAST 0.00%↑) CFO Holden Lewis

Credit is tightening some

"The other thing I'll add to that is we did mention in the prepared remarks and we have tightened -- many lenders have tightened on their -- in our platform, as well as outside of the industry and we've tightened as well...we have tightened just to make it a little more conservative to watch this consumer carefully." - CarMax (KMX 0.00%↑) SVP of CarMax Auto Finance Jon G. Daniels

"I wouldn't use the word credit crunch if I were you. Obviously, there's going to be a little bit of tightening. And most of that will be around certain real estate things. You've heard it from real estate investors already. So I just look at that as a kind of a thumb on the scale. It just means the finance conditions will be a little bit tighter and increases the odds of a recession. That's what that is. It's not like a credit crunch." - JPMorgan Chase (JPM 0.00%↑) CEO Jamie Dimon

For now, the slowdown is small though

"It was pretty small when you look at that change. So I wouldn't read too much into it. I think people are still -- there's still a lot of activity out there and consumers are still out spending both on the debit side and the credit side. So I wouldn't read into a couple of weeks...Customer activity is still relatively strong" - Wells Fargo (WFC 0.00%↑) CFO Michael Santomassimo

"Relating to the industrial recession, we don’t really see that. As a matter of fact, if you look at Minneapolis and Detroit, they’re actually ahead." - Delta Air Lines (DAL 0.00%↑) President Glen Hauenstein

The economy has proven shockingly resilient

"The FOMCC has significantly raised the target range for the federal funds rate to dampen aggregate demand, but U S consumers and businesses are showing remarkable resilience I mean if you'd told me we'd raise the fed funds rate 500 basis points in one year and nothing appears to be happening. That would just be shocking...so far tighter monetary policy and credit conditions are not doing that much to restrain aggregate demand." - Federal Reserve Governor Christopher J. Waller

The Fed is cautious but still hawkish

“Monetary policy needs to be tightened further. I would welcome signs of moderating demand, but until they appear and I see inflation moving meaningfully and persistently down toward our 2% target, I believe there is still more work to do...Whether you measure inflation, using CPI or the Fed's preferred measure of personal consumption expenditures or PCE. It is still much too high and so my job is not done." - Federal Reserve Governor Christopher J. Waller

"Given how uncertainty abounds about where these financial headwinds are going, I think we need to be cautious. We should gather further data and be careful about raising rates too aggressively until we see how much work the headwinds are doing for us in getting down inflation." - Chicago Fed President Austan Goolsbee

"Since the full impact of monetary policy actions can take as much as 18 months to work its way through the economy, we will continue to look closely at available data to determine what, if any, additional actions we may need to take. But make no mistake: We are fully committed to bringing inflation back down to our 2% target." - Philadelphia Fed President & CEO Patrick Harker

People need to prepare for higher rates for longer

"I don't quite believe it. So the rate curve -- the Fed has the rate curve -- forward short-term rate curve, almost 1% higher than what the market has...So there is a risk of higher rates for longer. And don't just think of just the Fed funds rate because I think you should -- for our planning, I'd be thinking more about, it could be 6 and don't -- and then think about the 5- and 10-year rate, which could be 5. And I think if those things happen, I'm not saying they're going to happen. I just think people should prepare for them." - JPMorgan Chase (JPM 0.00%↑) CEO Jamie Dimon

"...the part of the issue that we face here is you have an interest rate forward curve that's suggesting cuts out there...We kind of think the Fed's going to hold through the year and cut next year. Personally, I think they might hold longer than that." - PNC Financial Services Group (PNC 0.00%↑) CEO William Demchak

If rates stay high for longer there will be risk

"If and when that happens, it will address problems in the economy for those who are too exposed to floating rates or those who are too exposed to refi risk. That -- those exposures will be in multiple parts of the economy." - JPMorgan Chase (JPM 0.00%↑) CEO Jamie Dimon

This means that there still could be more bank failures

"We're not through with bank failures. But we're through the depositor, depositors haven't had a crisis. The owners of banks may have lost a hell of a lotta money. The people who bought the debt of the holding company may they may lose a lotta money. People can lose a lotta money. But the depositors aren't gonna so you don't need to turn a dumb decision by managers into a panicking the whole citizenry of the United States about something they don't need to be panicked about." - Berkshire Hathaway (BRK.A) CEO Warren Buffett

International