Evelyn Reynolds

Defense stocks dropped sharply Thursday afternoon after President Donald Trump suggested the U.S. could massively cut defense spending.
Trump has sent mixed messages on military spending throughout his 2024 campaign and in the early days of his presidency.

U.S. President Donald Trump sits in the Oval Office of the White House in Washington on Feb. 13, 2025.
Kevin Lamarque | Reuters

Defense stocks dropped sharply Thursday afternoon after President Donald Trump suggested the U.S. could massively cut defense spending.
Trump said Thursday at the White House the U.S. could cut defense spending in half at some point in the future. The comments came in the context of Trump discussing a potential conference on defense spending with China and Russia.

“At some point, when things settle down, I’m going to meet with China and I’m going to meet with Russia, in particular those two, and I’m going to say there’s no reason for us to be spending almost $1 trillion on the military … and I’m going to say we can spend this on other things,” Trump said.
“When we straighten it all out, then one of the first meetings I want to have is with President Xi of China and President Putin of Russia, and I want to say let’s cut our military budget in half. And we can do that, and I think we’ll be able to do that,” he added.
Defense stocks that had been higher earlier in the day quickly fell. Shares of Lockheed Martin dropped 1.6%, Northrop Grumman sank 3.4% and General Dynamics lost 2.1%.
Trump has sent mixed messages on military spending throughout his 2024 campaign and in the early days of his presidency.
On one hand, Trump has enlisted Elon Musk and the so-called Department of Government Efficiency to find places to cut costs throughout the government. Trump has also pushed for a quick resolution of the war in Ukraine, which has involved the purchase of a lot of American weapons.

On the other hand, he has touted the importance of having a strong military and signed an executive order to explore building an “Iron Dome of America” missile defense system. Trump also said Thursday that the U.S. has the “greatest military equipment in the world.”
“Right now, people are confused by a number of different crosscurrents” on defense spending, TD Cowen policy analyst Roman Schweizer told CNBC last week.

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The producer price index increased by a seasonally adjusted 0.4% on the month, compared with the Dow Jones estimate for 0.3%.
Stock market futures moved slightly higher following the release while Treasury yields fell. Wall Street strategists cited details of the report that suggested a slightly more benign inflation picture.

A gauge of wholesale prices rose more than expected in January, though some details of the report indicated that pipeline inflation pressures are easing.
The producer price index, which measures what producers get for their goods and services, increased by a seasonally adjusted 0.4% on the month, compared with the Dow Jones estimate for 0.3%, the Bureau of Labor Statistics reported Thursday.

Excluding food and energy, the core PPI was up 0.3%, in line with the forecast.
Stock market futures moved higher following the release while Treasury yields were sharply lower, despite the higher-than-expected headline number. Wall Street strategists cited details of the report that suggested a slightly more benign inflation picture.
In particular, some costs related to health care showed easing — physician care, for instance, fell 0.5%. Also, domestic airfares declined by 0.3% and brokerage services prices were off 2.2%.
Over the past year, the all-items PPI increased 3.5%, well ahead of the central bank’s objective. Futures pricing indicates the market now does not expect the Fed to lower its benchmark interest rate again until October.
While the producer and consumer price index releases are widely cited inflation gauges, they are not the principal ones the Fed uses. Rather, the central bank focuses on the personal consumption expenditures prices index, which the Commerce Department will release later in February. The PPI and CPI releases do feed into that measure.

Fed Chair Jerome Powell on Wednesday noted the Fed’s greater focus on the PCE measure, while telling the House Financial Services Committee that “we’re not quite there yet” on inflation though he cited “great progress” made so far.
Putting the data together, the core PCE measure likely will show a 0.22% increase, down from 0.45% in December, according to Citigroup estimates. That would push the annual inflation rate down to 2.5%, the firm said.
The PPI release comes the day after the BLS reported that the consumer price index rose 0.5% on the month, putting the annual inflation rate at 3% and well out of reach of the Fed’s 2% long-run goal.
Together, the reports are pushing back expectations for a rate cut until the second half of the year, though inflation data can be volatile and the outlook could change depending on what subsequent months show.
“Wholesale price growth came in slightly higher than expected for January, and the read for December was adjusted upward,” said Elizabeth Renter, senior economist at personal finance site NerdWallet. “In other words, inflation at the producer level remains high, and one concern is that this inflation could ultimately be passed along to consumers.”
Revisions to the December numbers also complicated the inflation picture, with the gain now put at 0.5%, compared with the 0.2% increase previously reported.
In January, producer prices for services increased 0.3% while goods rose 0.6%. Services prices were led by a 5.7% jump in the traveler accommodation services category, which the BLS said accounted for more than one-third of the gain.
On the goods side, a 10.4% surge in diesel fuel costs was a significant factor. The PPI data also reflected the massive jump in egg prices as farmers destroy millions of chickens to prevent the spread of avian flu. Eggs for fresh use exploded 44% higher on the month and were up 186.4% from a year ago.
In other economic news Thursday, the Labor Department reported that initial filings for unemployment claims changed little for the week ended Feb. 8. Claims totaled 213,000, a decrease of 7,000 from the prior period and close to the 215,000 estimate. Continuing claims, which run a week behind, fell to 1.85 million, down 36,000.

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Hedge fund titan Ray Dalio issued a fresh warning about the U.S. economy, warning of dire consequences if debt is not significantly cut.
He stressed that governments are responsible, and that leaders should make a pledge to reduce the U.S. budget deficit from 7.5% to 3% of gross domestic product or resign.
U.S. gross national debt stood at approximately $36.22 trillion as of Feb. 11.

DUBAI, United Arab Emirates — Hedge fund titan Ray Dalio issued a fresh warning about the U.S. economy, warning of dire consequences if the Trump administration does not cut the country’s debt.
“It’s like if I was a doctor and I was speaking with you about your condition, I would say to you, this is now very, very serious. All of these are major problems,” Dalio told CNBC’s Dan Murphy at the World Governments Summit in Dubai. “What you need to do is cut your deficit from about seven and a half percent of GDP to 3% of gross domestic product, and you can do that. There are certain things that you can do that cut it in a certain way that’ll make it much healthier, so the real problem is a political problem.”

The U.S. gross national debt stood at approximately $36.22 trillion as of Feb. 11, with $28.8 trillion of that as debt held by the public in the form of securities owned by individuals, corporations, state or local governments, Federal Reserve banks, foreign governments, and other entities outside the U.S. government. 
High debt means the government spends more on interest payments and is more economically vulnerable in the event of future economic crises. It also leads to higher inflation and creates a burden for future generations.

“I want to alert people. I want to alert government officials,” the billionaire Bridgewater Associates founder said. “I want to help, you know, and so I feel like the doctor, and then I would say everybody, politically … if this doesn’t happen, and we have the equivalent of, you know, an economic heart attack, or a heart attack of the bond market, then you know who’s responsible, because it can happen.”
“So it requires the same kind of discipline as if I was to say to you, OK, you need to change how you eat, you need to change your exercise routine, and you need to do these things.”
Dalio stressed that governments are responsible, and that leaders should make a pledge to reduce the U.S. budget deficit from 7.5% to 3% of its GDP or resign.

When asked what his message was to the Trump administration, Dalio replied:
“I think they recognize the problem, and then in the actions that are being taken, how do you cut costs? How do you raise productivity? … Make sure that you really know what you’re doing and you’re practical, and do it on … the conservative side, because you know, how much can the cutting actually be? We’ll see, and what are the consequences of the cutting and each one of those. So you better take a sharp pencil and be conservative.”
Dalio also warned of debt in private credit, saying a “debt death spiral is that part of the cycle, when the debtor needs to borrow money in order to pay debt service, and it accelerates, and then everybody sees that, and they don’t want to hold the debt. That’s where we’re approaching.”
Dalio’s Bridgewater Associates is one of the world’s largest hedge funds. It had $171.7 billion in assets under management as of September 2023, according to the U.S. Securities & Exchange Commission. More

A Fed interest rate cut won’t be coming until at least September, if at all this year, following a troubling inflation report Wednesday.
Chair Jerome Powell, in an appearance before the House Financial Services Committee, insisted the Fed had made “great progress” on inflation from its cycle peak “but we’re not quite there yet.”

Cartons of eggs are displayed at a grocery store with a warning that limits will be placed on purchases as bird flu continues to affect the egg industry on Feb. 10, 2025 in New York City. 
Spencer Platt | Getty Images

A Federal Reserve interest rate cut won’t be coming until at least September, if at all this year, following a troubling inflation report Wednesday, according to updated market pricing.
Futures markets shifted from the expectation of a June cut and possibly another before the end of the year to no moves until the fall, with a minimal chance of a follow-up before the end of 2025.

“The Fed will see January’s hot inflation print as confirmation that price pressures continue to bubble beneath the economy’s surface,” Bill Adams, chief economist at Comerica, wrote in commentary that echoed others around Wall Street. “That will reinforce the Fed’s inclination to at least slow and possibly even end rate cuts in 2025.”
Reduced optimism for Fed easing came after the January consumer price index report showed a 0.5% monthly gain, pushing the annual inflation rate to 3%, a touch higher than December and only slightly lower than the 3.1% reading in January 2024. Excluding food and energy, the news was even worse, with a 3.3% rate that showed core inflation, which the Fed tends to rely on more, also rising and holding well above the central bank’s goal.
Fed Chair Jerome Powell, in an appearance Wednesday before the House Financial Services Committee, insisted the central bank had made “great progress” on inflation from its cycle peak “but we’re not quite there yet. So we want to keep policy restrictive for now.”

U.S. Federal Reserve Chair Jerome Powell testifies before a House Financial Services Committee hearing on “The Semiannual Monetary Policy Report to the Congress,” on Capitol Hill in Washington, D.C., U.S., February 12, 2025. 
Nathan Howard | Reuters

As the Fed targets 2% inflation and the report showed no recent progress, it also dimmed hopes that the central bank will view further policy easing as appropriate after it lopped a full percentage point off its benchmark short-term borrowing rate in 2024.
Fed funds futures trading pointed to just a 2.5% chance of a March cut; only 13.2% in May, up to 22.8% in June, then 41.2% in July and finally up to 55.9% in September, according to the CME Group’s FedWatch gauge as of late Wednesday morning. However, that would leave the probability still up in the air until October, when futures contracts pricing implies a 62.1% probability.

Odds of a second cut by the end of 2025 were at just 31.3%, with pricing not indicating another reduction until late 2026. The fed funds rate is currently targeted in a range between 4.25%-4.5%.
The issues raised in the CPI report are not happening in isolation. Policymakers also are watching White House trade policy, with President Donald Trump pushing aggressive tariffs that also could boost prices and complicate the Fed’s desire to get to its goal.
“There is no getting away from the fact that this is a hot report and with the sense that potential tariffs run upside risk for inflation the market is understandably of the view the Federal Reserve is going to find it challenging to justify rate cuts in the near future,” said James Knightley, chief international economist at ING.
While the Fed pays attention to the CPI and other similar price measures, its preferred inflation gauge is the personal consumption expenditures price index, which the Bureau of Economic Analysis will release later in February. Elements from the CPI filter into the PCE reading, and Citigroup said it expects to see core PCE fall to 2.6% for January, a 0.2 percentage point decline from December.

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A new car would cost about $5,790 more if President Donald Trump’s plans for 25% tariffs on Mexico and Canada go into effect, according to an estimate from Benchmark.
Benchmark found that more than 22% of finished cars and about 40% of auto parts come to America from the two trading partners.
The auto industry is among the “most exposed” to the risk of higher tariffs, the investment bank said.

In an aerial view, Chevrolet cars and trucks are on display at Novato Chevrolet on Jan. 28, 2025 in Novato, California.
Justin Sullivan | Getty Images

Americans shopping for cars may need to fork over thousands more if President Donald Trump’s proposed tariffs go into effect, according to data from investment bank Benchmark Co.
Analyst Cody Acree estimated that the average sticker price would rise about $5,790, based on the impact of the currently paused 25% levies on cars and components from Mexico and Canada. That would raise the cost of an average new car above $54,500, or nearly 12% higher than in 2024.

“We believe the Auto sector is the most exposed to the risks of increased tariffs,” Acree wrote in a note to clients, “given its sheer size of trade dollars, the complexity of the intertwined supply and manufacturing channel that has been cultivated over decades, and the sheer number of our companies that participate in support of this key consumer industry.”
Trump slapped 25% tariffs on Canada and Mexico at the start of February, briefly rocking markets, but later suspended the duties for one month after reaching tentative agreements with Prime Minister Justin Trudeau and President Claudia Sheinbaum.
Now, consumers and investors alike wonder what form tariffs will take, or if they’ll go into effect at all. Benchmark calculated what 25% levies would mean for the average American’s buying power on a popular big-ticket purchase.
Benchmark’s estimated higher costs for a car is based on more than 22% of finished automobiles sold in the U.S. coming from Mexico and Canada last year. On top of that, the firm said about 40% of parts used in vehicles also come to America from its North American partners.
That amounts to more than $200 billion worth of exports to America last year. Specifically, Acree found that Mexico supplied $95 billion in completed cars to the U.S., in addition to $68 billion in parts in 2024. Canada provided more than $36 billion worth of finished cars and nearly $16 billion in components.

During an industry event this week, Ford Motor CEO Jim Farley said Trump’s proposed tariffs on Canada and Mexico, combined with 25% fees on steel and aluminum imports, have created headaches.
“President Trump has talked a lot about making our U.S. auto industry stronger, bringing more production here, more innovation in the U.S., and if his administration can achieve that, it would be one of … the most signature accomplishments,” Farley said during a Wolfe Research investment conference. “So far what we’re seeing is a lot of cost, and a lot of chaos.”
— CNBC’s Michael Wayland contributed to this report. More

The CPI accelerated a seasonally adjusted 0.5% for the month, putting the annual inflation rate at 3%, both higher than expected. The core CPI ran at 0.4% and 3.3% respectively, also above forecast.
Shelter costs continued to be a problem for inflation, rising 0.4% on the month. Food prices jumped 0.4% and energy prices climbed 1.1% as gasoline prices increased 1.8%.
Markets largely expect the Fed to stay on hold for an extended time and pushed the next rate cut probability out to September following the CPI report.

Inflation perked up more than anticipated in January, providing further incentive for the Federal Reserve to hold the line on interest rates.
The consumer price index, a broad measure of costs in goods and services across the U.S. economy, accelerated a seasonally adjusted 0.5% for the month, putting the annual inflation rate at 3%, the Bureau of Labor Statistics reported Wednesday. They were higher than the respective Dow Jones estimates for 0.3% and 2.9%. The annual rate was 0.1 percentage point higher than December.

Excluding volatile food and energy prices, the CPI rose 0.4% on the month, putting the 12-month inflation rate at 3.3%. That compared with respective estimates for 0.3% and 3.1%. The annual core rate also was up 0.1 percentage point from December.

Markets tumbled following the news, with futures tied to the Dow Jones Industrial Average sliding more than 400 points while bond yields scaled sharply higher.
“The ‘wait and see’ Fed is going to be waiting longer than anticipated after a red-hot January CPI inflation report,” wrote Josh Jamner, investment strategy analyst at ClearBridge Investments. “This report puts the final nail in the coffin for the rate cut cycle, which we believe is over.”
Indeed, market pricing shifted the outlook for the next rate cut to at least September, even as Fed Chair Jerome Powell said he would offer “a note of caution” about reading too much into the CPI report.
“We don’t get excited about one or two good readings and we don’t get excited about one or two bad readings,” Powell said in testimony before the House Financial Services Committee. He added that the Fed more closely adheres to the Commerce Department’s personal consumption expenditures prices gauge, which will get more clarity following Thursday’s producer price index report from the BLS.

Shelter costs continued to be a problem for inflation, rising 0.4% on the month and accounting for about 30% of the entire increase, the BLS said. Within the category, a metric in which homeowners estimate what they could get if they rented their homes increased 0.3% on the month and was up 4.6% on an annual basis.

“Shelter costs continue to be the main driver of core inflation as higher mortgage rates push more Americans into a rental market in which vacancy rates are near record lows,” said Erik Norland, chief economist at CME Group. “Traders appear to believe that today’s data make additional Fed cuts less likely than they had expected previously.”
Food prices jumped 0.4%, pushed by a 15.2% surge in egg prices related to ongoing problems with avian bird flu that have forced farmers to destroy millions of chickens. The bureau said it was the largest increase in egg prices since June 2015 and it was responsible for about two-thirds of the rise in food-at-home prices. Egg prices have soared 53% over the past year.
Nonalcoholic beverages posted a 2.2% gain over the past 12 months, while in January tomatoes fell 2% and other fresh vegetables declined 2.6%.
New vehicle prices were flat, but used cars and trucks saw a 2.2% increase and motor vehicle insurance was up 2%, pushing the annual gain to 11.8%. Energy prices climbed 1.1% as gasoline prices rose 1.8%.
The report comes a day after Powell indicated the central bank could be on hold for a while when it comes to interest rates. Powell told members of the Senate Banking Committee that he thinks the Fed doesn’t need to be in a rush to lower rates as it evaluates progress on inflation and as President Donald Trump continues plans to levy tariffs against imports.
Markets largely expect the Fed to stay on hold for an extended time and pushed the next rate cut probability out to September following the CPI report, according to CME Group data. Traders also implied about a 70% probability that the Fed will cut only once this year.
Trump, though, is still pushing for lower rates. In a post on Truth Social about half an hour before the CPI release, the president said, “Interest Rates should be lowered, something which would go hand in hand with upcoming Tariffs!!!”
The CPI release, though, could complicate further easing in monetary policy.
The jump in prices ate into worker paychecks, as the CPI increase entirely offset the 0.5% move higher in average hourly earnings, the BLS said in a separate release.
Correction: Josh Jamner is an investment strategy analyst at ClearBridge Investments. An earlier version misspelled his name.

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