Investors were not prepared for the volatility in 2025. The macro and micro markets seem to be telling a different story whether you zoom out or zoom in.

I'm not a macro investor but there are few metrics I follow when it comes to investing. For example, I'll track inflation, the price of crude oil, the 10-year Treasury rate and the S&P 500. These aren't perfect indicators but they give me insight on what's happening in the market from different angles. Let's breakdown a few of these indicators, and how I think of them. Then I'll discuss Powell's current position.

The Recession Indicators

The S&P 500 Index is down 11% for the year. I don't think any major investment firm predicted the downward swing with the Trump Administration. Instead, most of us were quite bullish on the markets until Feb 19th, which is when the S&P 500 peaked around 6,144.

However, the tariff news really shocked the market and it began spiraling downwards. In fact, so many investors, economists and major corporations have become bearish on the economy for good reasons. I think tariffs, or external taxes, do introduce a new tax to the global markets. Investors were aware of them before President Trump came into office but it was unclear what the tariff rates would be. To me, it looks like the rates will stabilize around 10% over the long-term. President Trump's goal is to use that tariff revenue to offset the income taxes for anyone making $150,000 or less. It's unclear if this plan will be successful, which is why the markets have sold off.

Now to understand the market risks, I view the Volatility Index (the "VIX") to see how investors are managing for the downside risks. One day after the tariff announcement, the VIX peaked at 52 on April 8th. This suggests that investors were buying puts, selling calls and much more to hedge for downside protection. This fear has declined for the past few weeks but still quite high at 34, which is double the average VIX levels. It's worth noting that the VIX spiked to 38 in August 2024 due to bearish sentiment but reverted back to ~20 soon after.

Inflation is on the Decline

During the Biden Administration, inflation had become rampant for two years, from 2022 to 2024. One of the main drivers for the spike to 8% inflation was the excessive money printing after the pandemic. Which is why I started tracking websites like USA Facts to understand how the government is spending our taxpayer dollars. Excessive spending is also why the Trump Administration started D.O.G.E. to cut wasteful spending.

The first thing investors and consumers notice about headline inflation is that it is nearing an all-time low at 2.4%. This is a massive decline and something the average American realizes in real-time. In 2025, the cost of eggs, milk and energy have dropped significantly. That's why I track crude oil on a regular basis. Chances are you, if you drive, you are familiar with the price of oil too. It's dropping.

The price of crude has a macro and micro impact on the economy. First, when oil prices decline, Americans feel the savings in their pockets instantly. The second factor is other countries that depend on the price of oil as an export, feel the pain. This includes countries such as Iraq, Venezuela and Russia. If you reduce the ability for these countries to generate a profit, it limits their reach in the global economy.

Treasury Rates

The last indicator I look at is the risk-free rate, or the 10-year Treasury, which is the cost of financing for the world. Since the U.S. dominates the capital markets, every country and major corporation relies on our Treasuries to finance their way of life. The cost of debt and equity are based the Treasury rates. And right now the 10-year is at 4.29%.

Now the yield curve has been rising for the past five years because we are no longer in a zero-rate environment anymore. But if the rates rise too quickly, then the cost of borrowing increases for everyone. Given how large U.S. government's current debt load is, our annual interest expense was rising too quickly. But the Trump Administration has been keen on these macro factors and working to reduce the cost of borrowing and inflation at the same time. It's tough to pull both off but it's working for the time being, and the average American is saving money.

Jerome Powell at the Economic Club

The Federal Reserve Chair is an interesting position at the current moment. In previous years, the Chair would have a tight grasp on our country's monetary policy and the markets. But now that the Trump Administration is in the driver's seat, they are controlling the narrative of government spending and its deficit. Which is why President Trump is taking credit for lowering inflation and other macro factors.

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However, controlling these factors comes at a cost. Powell mentioned several of these in his speech at the Economic Club of Chicago today. Two major ones worth noting are the slowdown of economic growth and increased market volatility.

I think both of these factors are easy to predict now that the tariffs are priced in. But they do make for a challenging scenario for investors. The U.S. economy is still in a healthy position but I suspect we will face more volatility in the near-term. A recession is likely, based on the textbook definition, where we will see 2-3 down quarters in the next 18 months. I don't think it will be a major slowdown but contractions are painful and difficult to predict.