Banks Warn of Risk to U.S. Economy Because of Tariffs
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What are the key economic warnings from U.S. banks?
U.S. consumer sentiment tanks and inflation expectations rise to their highest in more than 40 years. Plus, Wall Street sounds the alarm for economic volatility ahead because of President Trump's tariff policy. And small businesses might end up as the biggest losers of Trump's trade war.
It's like every day they wake up and it's a new reality that they're trying to adjust to.
It's Friday, April 11th. I'm Alex Osola for The Wall Street Journal. This is the PM edition of What's News, the top headlines and business stories that move the world today. The U.S. economy showed fresh signs of strain today. Consumer sentiment plunged further this month as recession fears built.
How are consumer sentiments affecting the U.S. economy?
The University of Michigan survey, a closely watched index of consumer sentiment, nosedived to 50.8 in April from 57 last month. That was much lower than economists expected and is one of the weakest readings in the past decade. The share of Americans expecting unemployment to rise in the year ahead increased to the highest since 2009 — and inflation expectations in the year ahead hit their highest rate since 1981. That uncertainty is hitting Wall Street, too. In earnings calls today, executives warned that President Trump's tariffs were sending the U.S. economy into the unknown and that the uncertainty was already hurting consumers and companies alike.
What are banks monitoring for future economic stability?
For more on how banks are gauging what's ahead, I'm joined now by Heard on the Street columnist Jonathan Weil. Jonathan, what kinds of information are banks going to be keeping an eye on to get a sense of where things are headed?
The things they're going to be monitoring are the usual things banks monitor. Are borrowers more likely to default on their credit cards, on their loans? What's going to be happening to mergers and acquisitions and deal volumes? They're explicitly saying that they think that those will be going down. They're expecting a lot more volatility. That has a lot of trade-offs. That can be really good if you run a trading desk. Not so good if the volatility goes so berserk that nobody wants to trade anything anymore.
And what are these banks expecting for their own finances in the next quarter?
Well, the guidance that they have given is much more cautious than it was, say, three months ago. Morgan Stanley today, they're generally bullish. That's an investment bank. It's a different type of business model than Wells Fargo or JP Morgan.
How are banks preparing for potential credit losses?
JP Morgan and Morgan Stanley said they boosted provisions for possible credit losses as consumers and businesses may be unable to pay their loans. How significant is that?
One of the things that JP Morgan said, their CFO on their earnings call today, said the way these things are all about mathematical models, it's not just looking at a loan to see if that particular loan is more or less likely to default. They said that they haven't seen, at least through the first quarter, hadn't seen any deterioration in the credit quality, broadly speaking, of their loan book. So we've seen some uptick in the credit losses at some of these banks. But the really big move, if things went haywire, would be showing up in the second quarter. And the answer they get about the outlook isn't necessarily very satisfying because they're in the same boat that we are. They have much more data that they can look at. But the conclusion is the same. We don't know.
All right. I guess we'll have to wait and see then. That was Heard on the Street columnist Jonathan Weil. Thank you, Jonathan.
Thank you.
Despite that cloudy future outlook, the volatility wasn't all bad for Wall Street. Big banks reported a pretty good first quarter today. Trading desks racked up revenue as clients looked to exit or buy new investments during earlier market swings, gains that likely got even bigger in the past week for the banks. In the first quarter of the year, J.P. Morgan brought in a record $3.8 billion in equities trading revenue. At Morgan Stanley, equities revenue was up 45% to more than $4 billion. Recession warnings didn't stop U.S. stocks from ending one of their most tumultuous weeks in years on an upswing. The Dow rose about 1.6 percent, the S&P 500 notched gains of roughly 1.8 percent, and the Nasdaq closed about 2 percent higher.
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Chapters
6 chapters
1
What are the key economic warnings from U.S. banks?
0:03–0:47
2
How are consumer sentiments affecting the U.S. economy?
0:47–1:25
3
What are banks monitoring for future economic stability?
1:25–2:23
4
How are banks preparing for potential credit losses?
2:23–6:30
5
What impact are tariffs having on small U.S. businesses?
6:30–8:02
6
Why are small businesses more vulnerable to tariffs than large corporations?
8:02–12:03
Speakers
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