Inflation Rose More Than Expected in January; Food Prices Led by Eggs Also Rose

Sticky inflation puts pressure on Trump administration amid Fed concern about rising prices

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February 12, 2025 08:48 AM

Updates: Policy/News/Markets, Feb. 12, 2025

— January 2025 CPI report: inflation remains a concern. Highlights:
· Higher-than-expected inflation: U.S. consumer prices rose by 0.5% in January 2025, surpassing forecasts of a 0.3% monthly increase. The annual rate came in at 3%, above expectations for a steady reading with December at 2.9%.
· Core CPI increase: Core CPI (excluding food and energy) climbed 0.6% year-on-year, up from 0.4% in December 2024.

Contributing factors:
· Core goods and services: Rising costs for new and used cars, auto insurance, and communication services fueled inflation.
· Food prices: Up by 0.4% year-on-year, adding to overall price increases (see next item for details).

Market impact: Dow futures tumbled 400 points after January inflation data comes in hot. U.S. Treasury yields rose on Wednesday as investors reacted to the hotter-than-expected January consumer inflation report. The 10-year Treasury yield jumped 10 basis points at 4.643%, while the 2-year Treasury yield rose more than 9 basis points to 4.386%. Yields and prices move in opposite directions and one basis point equals 0.01%.

Upshot: With inflation still exceeding the Federal Reserve’s 2% target, the Fed remains cautious about rate cuts. Chair Jerome Powell has signaled no urgency for immediate easing. Market expectations for a March rate cut have dropped significantly. Meanwhile, inflation remains a global trend, with China also reporting a 0.5% year-on-year CPI increase in January. The persistence of inflation worldwide will be pivotal in shaping future central bank decisions.

— January 2025 CPI: Food prices continue to rise. According to the latest Consumer Price Index (CPI) data from the U.S. Bureau of Labor Statistics, food prices increased in January 2025 compared to December 2024.

Overall food price increase: Up 0.4% in January.
· Grocery prices: The food at home index rose 0.5%, showing a slight acceleration in grocery price inflation compared to the previous month.
· Restaurant prices: The food away from home index increased by 0.2%.
· Specific food categories: Four of the six major grocery store food groups saw price increases.
o Eggs. The index for eggs saw a dramatic increase of 15.2% in January compared to December. This surge in egg prices was the largest since June 2015 and accounted for approximately two-thirds of the total monthly food at home increase.
o Meats, Poultry, Fish, and Eggs. This broader category, which includes eggs, rose by 1.9% over the month. The substantial increase in egg prices was a major contributor to this category’s overall rise.
o The index for nonalcoholic beverages increased by 0.9% in January.
o The fruits and vegetables index fell by 0.5%.
o The cereals and bakery products index decreased by 0.4%.

Additionally, the energy index rose 1.1% in January, contributing to rising food costs. Over the past 12 months, the overall food index increased by 2.5%, reflecting persistent inflationary pressures in the food sector.

— Trump signs executive order to cut federal workforce. President Donald Trump signed an executive order (link) Tuesday to reduce the federal government workforce through efficiency improvements and attrition. The Department of Government Efficiency Workforce Optimization Initiative directs the Office of Management and Budget (OMB) to create a plan allowing agencies to hire only one employee for every four who leave, once the current hiring freeze ends. Exemptions will apply to public safety, immigration enforcement, and law enforcement roles.

Agencies must submit data-driven reorganization plans within 30 days, focusing on consolidating or eliminating offices not mandated by law. Plans for large-scale reductions in force (RIFs) will prioritize non-essential functions. While this order targets broad cuts across the government, legal challenges are likely, as seen with previous executive actions by the Trump administration.

Of note: Elon Musk admitted in an Oval Office session with Trump that he has made some mistakes in his efforts via DOGE. “Some of the things that I say will be incorrect and should be corrected. So, nobody can bat 1,000,” he said. He promised that he would act quickly to correct errors, and acknowledged that DOGE could be making errors as well. “We are moving fast, so we will make mistakes, but we’ll also fix the mistakes very quickly,” Musk said. Musk said that there’s plenty of room to shrink the federal government and that bureaucrats are an “unelected, fourth, unconstitutional branch of government.” (His critics note he fits that same category.)

Ag sector impacts. The executive order could have significant impacts on meat inspectors and USDA Farm Service Agency (FSA) county and state offices. Here’s a more detailed look at the potential effects:

Impact on meat inspectors. The executive order’s implications for meat inspectors could be substantial even though the Federal Meat Inspection Act (FMIA) requires that all meat sold commercially be inspected and passed to ensure that it is safe, wholesome, and properly labeled.
· Staffing shortages: The one-for-four hiring policy could lead to critical understaffing in meat inspection roles. This is particularly concerning given the already demanding nature of the job and its high turnover rate. Also, it takes time for a new meat inspector to be trained.
· Food safety concerns: Reduced staffing of meat inspectors could potentially compromise food safety standards and increase the risk of contaminated products reaching consumers.
· Industry pressure: The meat processing industry may face increased pressure to maintain production levels with fewer federal inspectors present, potentially leading to safety shortcuts.
· Workload increase: Remaining inspectors may face significantly increased workloads, potentially affecting the thoroughness of inspections and worker well-being.

Impact on USDA FSA county and state offices. USDA’s Farm Service Agency could also see significant changes:
· Office closures: The directive to consolidate or eliminate offices not mandated by law could lead to the closure of some FSA county and state offices, reducing local access to services for farmers and ranchers.
· Service delays: With potential staff reductions, farmers and ranchers may experience longer wait times for loan processing, program enrollment, and other critical services.
· Program implementation: The ability to implement new farm bill programs or respond to agricultural emergencies could be hampered by reduced staffing levels.
· Rural impact: As FSA offices are often significant employers in rural areas, closures or staff reductions could have broader economic impacts on rural communities.

Exemptions: While the order exempts public safety, immigration enforcement, and law enforcement roles, it’s unclear if food safety inspectors will be included in these exemptions.

Legal challenges: As with previous Trump administration actions, this order is likely to face legal challenges, particularly from federal employee unions and advocacy groups.

Long-term consequences: The attrition-based approach could lead to a loss of institutional knowledge and expertise in critical areas of food safety and agricultural support.

Modernization vs. cuts: While the administration frames this as an efficiency measure, critics argue it could lead to a hollowing out of essential government services rather than true modernization.

DOGE oversight: The newly created Department of Government Efficiency (DOGE) will play a significant role in implementing these changes, adding a layer of uncertainty to how cuts will be determined and executed.

— Trump advisers consider redirecting USAID funds to Wall Street-backed development agency. President Trump’s advisers are discussing plans to shift billions in funding from USAID to the U.S. International Development Finance Corporation (DFC), which is expected to be led by Ben Black, son of Apollo Global Management co-founder Leon Black. The move would reduce traditional humanitarian aid and prioritize private-sector investments, giving Wall Street a greater role in U.S. foreign policy as it counters China’s global influence. Meanwhile, Elon Musk, with Trump’s support, is advocating for the shutdown of USAID’s $43 billion budget, a longstanding pillar of U.S. foreign aid efforts.

— U.S. businesses struggle with uncertainty amid Trump’s tariff policies. U.S. businesses are grappling with uncertainty caused by President Trump’s shifting tariff policies, making it difficult to plan for the future. The lack of a clear long-term trade strategy has left business owners in limbo, the Wall Street Journal reports (link). A Minnesota sheet metal fabricator has paused investment and hiring due to repeated changes in tariff policy. Meanwhile, a Pennsylvania-based office-supplies retailer is negotiating discounts with Chinese manufacturers and exploring alternative suppliers in Vietnam, although concerns remain that Vietnam could face future tariffs as well. Ford CEO Jim Farley described the situation as “chaos” for the auto industry, while aluminum tariffs are already impacting companies like Coca-Cola, which relies on imported aluminum from Canada for its soda cans. “The president going back and forth every few days about what is going to happen with these tariffs is not helpful,” says Traci Tapani, co-president of sheet metal fabricator Wyoming Machine.

— Netanyahu threatens to end Gaza ceasefire over hostages. Israeli Prime Minister Benjamin Netanyahu warned that the ceasefire in Gaza would end if Hamas “does not return our hostages by Saturday.” It remains unclear if Netanyahu’s statement refers to all 76 hostages held by Hamas or just the three expected to be freed on Saturday. Hamas leaders have voiced several complaints against Israel regarding ceasefire conditions, while Israel has denied accusations of blocking humanitarian aid. The situation is increasingly volatile, with renewed fighting in Gaza raising concerns about escalating regional tensions.

FINANCIAL MARKETS

— Equities today: Asian and European shares were mixed to firmer in trading overnight. U.S. Dow opened down around 360 points. In Asia, Japan +0.4%. Hong Kong +2.6%. China +0.9%. India -0.2%. In Europe, at midday, London +0.1%. Paris +0.1%. Frankfurt +0.3%. Federal Reserve Chair Jerome Powell will head back to Capitol Hill today to appear before the House Financial Services Committee. On his first day of congressional testimony, the central bank chief signaled to the Senate Banking Committee that policymakers are not in a rush to lower interest rates, telling the senators on Tuesday, “We do not need to be in a hurry to adjust our policy stance.” See more below on Powell’s comments to a Senate panel on Tuesday.

Equities yesterday: The Dow and S&P 500 managed to finish higher while the Nasdaq could only briefly trade in positive territory in the morning and ended lower. The Dow rose 123.24 points, 0.28%, at 44,593.65. The Nasdaq fell 70.41 points, 0.36%, at 19,643.86. The S&P 500 edged up 2.06 points, 0.03%, at 6,068.50.

— Tesla stock tumbles amid growing investor concerns. Tesla shares fell over 6% Tuesday, marking a five-day losing streak with a 17% decline that erased more than $200 billion from its market cap. The drop follows rising competition from Chinese EV maker BYD and increasing worries about CEO Elon Musk’s expanding commitments. Musk, who also leads SpaceX, X (formerly Twitter), and AI startup xAI, recently made headlines with a $97.4 billion bid for OpenAI, raising further concerns about his focus on Tesla.

— CVS shares surge despite insurance losses. CVS Health shares rose 10% pre-market Wednesday after surpassing fourth-quarter earnings and revenue expectations. However, higher medical costs and lower Medicare Advantage star ratings hurt its insurance segment, resulting in an adjusted operating loss of $439 million. The quarter marks David Joyner’s first full term as CEO after succeeding Karen Lynch in October.

— Fed’s Powell message on economy little changed. Fed Chairman Jerome Powell highlighted a U.S. economy that is in a “good place” and continued to indicate the Fed is in “no rush” to lower interest rates any further at this point in his testimony Tuesday on monetary policy before the Senate Banking, Housing, and Urban Affairs Committee Tuesday. However, he did acknowledge long-term rates could remain at higher levels if investors become more concerned about rising budget deficits or new shocks that generate inflation risks.

Powell also, as should have been expected, mostly sidestepped questions about Trump tariffs, emphasizing the Fed needed to see the details about the plans. “The standard case for free trade.. .logically still makes sense,” he stated. But he also stressed that it was “not the Fed’s job to make or comment on tariff policy...Ours is to try to react to it in a thoughtful, sensible way.” Powell said the U.S. central bank will look at the tariff actions, immigration, fiscal and regulatory policy and “try to make sense of it.” He did acknowledge that there could be some price increases due to tariffs, but it was not yet clear if those increases would be felt by consumers.

Powell will deliver his second day of testimony to the House Financial Services Committee today with no change in his prepared testimony.

The questions from lawmakers will be the main focus and expectations are that Powell will not veer from the kind of answers he delivered before the Senate panel. But the range of questions will vary as lawmakers seek to make their own marks on various issues in a bid to elicit answers from Powell on topics he has already addressed.

Of note: Powell said the Fed will never have its own digital currency as long as he’s at the helm.

Bottom line: His remarks and answers are close to those that he and other Fed officials have signaled since the Jan. 29 conclusion of the Federal Open Market Committee (FOMC) and history shows Powell will stick to his message until he views the situation as being changed.

— Trump urges rate cuts ahead of Powell testimony. President Donald Trump has called for lowering interest rates, increasing pressure on the Federal Reserve as he pushes a second-term economic agenda centered on tariffs and expanded tax breaks. “Interest Rates should be lowered, something which would go hand in hand with upcoming Tariffs,” Trump stated on social media Wednesday. His comments come just before Fed Chairman Jerome Powell’s testimony to the House Financial Services Committee. Powell reiterated to senators on Tuesday that there is no urgency to adjust rates further after the Federal Open Market Committee held steady in January, following three rate cuts in late 2024.

Trump’s call marks a shift from earlier this month when he praised the Fed’s decision to hold rates steady. Throughout his presidency, Trump has frequently criticized Powell’s handling of monetary policy, suggesting his business experience gives him insight into the matter.

Amid ongoing tariff escalations and the promise of new trade measures, Trump’s policy moves have injected uncertainty into the U.S. economic outlook. Economists warn that these actions may fuel inflation, a concern that could significantly impact voters.

AG MARKETS

— Ag markets today:

Wheat firmer, beans weaker and corn mixed this morning. Wheat futures have adopted a mildly firmer tone early this morning after two-sided trade overnight, while soybeans have weakened. Corn is chopping around unchanged. As of 7:30 a.m. ET, corn futures were narrowly mixed, soybeans were 5 to 6 cents lower and wheat futures were mostly 1 to 3 cents higher. The U.S. dollar index was near unchanged, and front-month crude oil futures were around $1.00 lower.
Cash cattle trade lower. The heavy long liquidation in cattle futures triggered an early start to cash cattle activity, with initial prices mostly around $3.00 lower than last week. With packers slowing kills to mitigate poor margins and manage tight supplies and feedlots current on marketings, this week’s negotiated cash trade may be limited in size.
Cash hog fundamentals continue to strengthen. The CME lean hog index is up another 44 cents to $86.19 as of Feb. 10, extending the seasonal price climb over the past month. The pork cutout firmed a dime on Tuesday to $99.72, also extending its season price rise since early January.

— Ag trade: South Korea purchased 115,000 MT of feed wheat – 55,000 MT to be sourced from Australia and 60,000 MT optional origin – and tendered to buy up to 210,000 MT of corn from the U.S., South America or South Africa. Japan is seeking 123,979 MT of milling wheat via its weekly tender. Jordan tendered to buy up to 120,000 MT of optional origin milling wheat.

— USDA daily export sales:
· 130,320 MT of corn to unknown destinations and 120,000 MT of soybeans for delivery to unknown destinations for 2024-25.

— China’s waning grain imports signal shift for global markets. Karen Braun writing for Reuters notes that China’s role as a major grain importer is declining, signaling a significant shift in global agricultural trade. USDA has revised China’s 2024-25 grain import forecasts, cutting expected corn imports to 10 million metric tons and wheat imports to 8 million metric tons — down nearly 25% from January projections and significantly below recent years. Braun notes this trend contrasts with the surge in Chinese imports during the early 2020s when the country’s corn imports peaked at 29.5 million tons. Much of this was driven by concerns about dwindling domestic stocks and spoilage. Since then, China has shifted its purchasing strategy, favoring Brazilian suppliers while reducing imports from the U.S. and Australia. Braun concludes that China’s recent record-breaking corn and wheat harvests, coupled with slowing economic growth, suggest continued reduced demand for imported grain. Says says global exporters like the U.S. and Brazil may need to adjust expectations and focus on long-term trade strategies with other buyers.

ChinaCorn&Wheat.jpg — China Corn & Wheat Imports

— France cuts non-EU wheat export forecast. France’s ag ministry lowered its forecast for 2024-25 French wheat exports outside the EU by 100,000 MT to 3.4 MMT. That would be down 67% from 2023-24 and the lowest level in the ministry’s records dating back to 1996-97. The ministry raised its export forecast within the bloc by 100,000 MT to 6.24 MMT, down just 50,000 MT from 2023-24.

— Ukraine’s grain exports continue to run ahead of year-ago. As of Feb. 12, Ukraine’s 2024-25 grain exports totaled 26.99 MMT, 1.47 MMT (5.8%) ahead of the same period last year. Exports included 11.34 MT of wheat (up from 9.97 MMT last year), 13.11 MMT of corn (down from 13.82 MMT) and 2.11 MMT of barley (up from 1.47 MMT).

— India’s palm oil imports fell to near 14-year low in January. India’s palm oil imports in January fell to their lowest in nearly 14 years as refiners turned to cheaper soyoil, driven by negative refining margins for palm oil. Palm oil imports in January fell 45% from December to 275,241 MT, the lowest since March 2011, the Solvent Extractors’ Association of India (SEA) said. India imported an average of more than 750,000 MT of palm oil every month in the marketing year that ended in October 2024, according to SEA. Imports of soyoil in January increased 5.6% to 444,026 MT, the highest in seven months, and sunflower oil imports rose 8.9% to 288,284 MT. Lower shipments of palm oil reduced the country’s total vegoil imports in January by 14.8% to 1 MMT, the lowest in 11 months. The drop in vegoil imports during recent months lowered inventories to 2.18 MMT at the start of February, the lowest since April 2022, SEA said.

— India expects bumper sugar crop that would allow exports. India expects to have enough sugar for export next season as favorable weather conditions help farmers boost acreage, according to a government official. The world’s second-biggest sugar producer in January permitted mills to ship as much as 1 MMT in the current season from October, easing restrictions that curbed overseas sales for more than a year. The industry was seeking permission to ship as much as 2 MMT. “All indications are that we’ll have a bumper sugar cane crop next year,” Aswani Srivastava, joint secretary at India’s food ministry, said at the Dubai Sugar Conference Wednesday. “We will remain in the export market.” India has exported up to 500,000 metric tons of sugar so far this season, but the pace is already slowing, and it may struggle to fulfil the one million tons allowed by the government, trade and industry sources told Reuters. “There are fears that the one million (ton) quota could actually be reduced,” Prakash Naiknavare, managing director of the National Federation of Cooperative Sugar Factories, told Reuters.

— Agriculture markets yesterday:
• Corn: March corn futures fell 7 1/2 cents to $4.84, near the session low.
• Soy complex: March soybeans fell 6 cents to $10.43 1/2, while March soymeal fell $3.90 to $296.60, each closing near the session low. March soyoil rose 40 points to 46.13 cents.
• Wheat: March SRW futures settled 2 1/2 cents lower to $5.77. March HRW futures dropped 4 cents to $5.92 3/4, nearer session lows. March HRS futures fell 7 cents to $6.18 1/4.
• Cotton: March cotton rose 86 points to 67.40 cents, ending the session above the 20-day moving average.
• Cattle: April live cattle futures slid $2.125 to $196.00 and settled nearer session lows, while nearby February futures sunk $2.125 to $199.675. March feeder cattle futures plunged $3.35 to $264.775.
• Hogs: April lean hogs rose $1.35 to $92.975, near the daily high and closed at a contract high close.

ENERGY MARKETS & POLICY

— Brent crude oil futures are currently trading near $76 per barrel. The price has increased by 1.52 a barrel or 2.03% since the beginning of 2025. West Texas Intermediate (WTI) crude oil futures are trading around $72.35 per barrel, down 0.97 or 1.32% from the previous close.

— Oil prices hit two-week high on Tuesday amid sanctions and Middle East tensions. Oil prices surged to a two-week high on Tuesday, driven by U.S. sanctions on Russian and Iranian crude exports and escalating Middle East tensions. Brent crude settled at $77.00 per barrel, rising 1.5%, while WTI climbed 1.4% to $73.32 per barrel, both marking their highest closes since Jan. 28. Sanctions on Russian oil shipments disrupted flows to China and India, while new restrictions on Iranian exports added to market uncertainty. Heightening geopolitical risks, Israeli Prime Minister Netanyahu threatened to end the Gaza ceasefire unless hostages are released, with President Trump backing a hardline stance. However, tariff-related concerns tempered gains. Trump’s recent 25% tariff on steel and aluminum imports fueled fears of a trade war, potentially curbing demand in oil-intensive sectors. Analysts warn of higher inflation and prolonged elevated interest rates if economic growth slows. The U.S. EIA forecast record petroleum production and consumption for 2025–2026, while weekly inventory data is expected to show a third straight stock build, indicating near-term supply pressure.

— SEC pauses defense of climate disclosure rule, signaling potential shift. The U.S. Securities and Exchange Commission (SEC) has halted its legal defense of a climate-related disclosure rule, indicating a possible change in its regulatory approach. Acting SEC Chair Mark Uyeda announced on Feb. 11 that the agency would seek a delay in ongoing litigation at the U.S. Eighth Circuit Court of Appeals. Uyeda, a consistent critic of the rule since its adoption in March 2024, called it “deeply flawed” and warned it could harm capital markets and the broader economy.

The rule, known as The Enhancement and Standardization of Climate-Related Disclosures for Investors, aimed to standardize corporate climate risk reporting, including data on greenhouse gas emissions and financial impacts. Business groups and Republican-led states immediately challenged it, arguing it was overly burdensome and beyond the SEC’s authority.

Uyeda’s reasoning for pausing the litigation cited questions about the SEC’s legal authority, cost-benefit concerns, and procedural flaws. He also pointed to recent leadership changes at the SEC and a presidential directive freezing new regulations. Critics, like Commissioner Caroline Crenshaw, labeled the move as politically motivated, noting strong investor support for the rule during its comment period.

The decision could lead to the rule’s repeal or revision, but companies may still face stricter climate disclosure requirements in jurisdictions like California, the European Union, and Canada.

Of note: Most large companies are still subject to impending climate disclosure rules. California has two major climate disclosure laws scheduled to take effect in 2026. They will require large companies with operations in the state to disclose climate-related financial risks and greenhouse gas emissions, including so-called Scope 3 emissions, which are produced by suppliers or consumers of a company’s products. Climate disclosure bills like the California laws were recently reintroduced in New York. Meanwhile, the European Union also passed a climate disclosure law that affects U.S. companies. Last year, the bloc began carrying out a law that requires the largest American companies operating in Europe to disclose climate-related data, including Scope 3 emissions.

— European energy industry warns against gas price cap, citing market risks. Europe’s energy and gas trading industries are urging the European Union not to cap gas prices, warning it could destabilize markets and compromise supply security. The appeal comes as the European Commission prepares a Feb. 26 package of measures aimed at reducing energy costs and boosting competitiveness. Industry groups, including Eurogas and Energy Traders Europe, argue that capping prices would damage trust in the EU’s benchmark gas price, push traders toward alternative markets, and reduce Europe’s ability to attract liquefied natural gas (LNG) shipments.

This concern follows rising gas prices — now at a two-year high of 58 euros per megawatt hour (MWh) — driven by cold weather and dwindling gas storage. While Brussels has previously considered a price cap during the 2022 energy crisis, it was never triggered. Some EU officials have dismissed its current viability, advocating instead for renewable energy expansion.

TRADE POLICY

— Japan seeks exemption from U.S. steel and aluminum tariffs. Japan’s industry minister, Yoji Muto, announced on Wednesday that Japan has formally requested an exemption from the newly imposed U.S. tariffs on steel and aluminum. President Donald Trump raised tariffs to 25% on Monday, aiming to protect struggling domestic industries. While Trump hinted at a possible exemption for Australia due to its trade deficit with the U.S., Japan is also seeking relief from these measures to avoid potential economic fallout.

— Italy warns Trump against bilateral trade deals with EU countries. Italian Industry Minister Adolfo Urso warned President Donald Trump that striking bilateral trade deals with individual EU member states would be “impossible” and could undermine the bloc’s unity on commerce. Urso highlighted that EU countries cannot negotiate separate trade agreements, emphasizing that trade policy decisions are solely handled by EU institutions. Italy is particularly concerned about tariffs due to its significant trade surplus with the U.S. However, Urso noted that recently announced U.S. duties on steel and aluminum would have minimal impact on Italian exports. While praising Prime Minister Giorgia Meloni’s strong relationship with Trump, Urso stressed Meloni’s commitment to maintaining EU cohesion and avoiding a trade war. EU trade ministers are set to discuss the matter in a virtual meeting today.

CONGRESS, POLITICS & ELECTIONS

— House Budget showdown: Arrington at the wheel. The House Budget Committee, chaired by Rep. Jodey Arrington (R-Texas), may release its budget resolution today — an essential step before a markup planned for Thursday. Arrington’s proposal calls for $4.5 trillion in tax cuts and $1.5 trillion in spending cuts. It assumes a 2.8% economic growth rate and includes $300 billion in mandatory spending increases for border security and defense.

This resolution represents a compromise between hardline conservatives pushing for deeper cuts and House leadership seeking balance.

Of note: It is unclear if the House GOP’s budget resolution includes repealing parts of the Inflation Reduction Act (IRA), including the Clean Fuels Production Credit (45Z). However, farm-state Republicans are pushing back against eliminating this credit, given its importance to their constituencies. With the House GOP holding only a slim majority and no expected support from Democrats, opposition from farm-state Republicans could derail the entire resolution. Balancing these internal divisions remains a key challenge for House leadership as they finalize the budget.

Senate Republicans are taking a different approach, opting for a two-bill strategy prioritizing a quick win for Trump with narrow spending packages.

Tensions between House GOP leadership and Arrington have slowed progress. Arrington remains firm on his plan, backed by Freedom Caucus members and deficit hawks on the Budget Committee. While Senate leaders believe their streamlined strategy is best, House Republicans are sticking with a “big, beautiful bill” approach, even as time runs short before their week-long recess.

Leadership remains cautiously optimistic that Arrington’s resolution will pass the Budget Committee and, eventually, the House floor. The next few days will be critical in determining whose strategy prevails.

CHINA

— China’s record mergers in $8 trillion small banking sector raise future risks. China oversaw its largest-ever wave of rural bank mergers last year, a Reuters review of official data showed, but analysts say Beijing’s efforts to tackle risks in the small banking sector could end up creating more problems down the road. Many of the roughly 4,000 small Chinese banks are backed by indebted provincial governments and largely funded via short-term money market and interbank borrowings, potentially jeopardizing financial stability in the event a few of them fail. At least 290 rural Chinese banks and rural cooperatives were merged into larger regional lenders in 2024, according to Reuters calculation of regulatory and company filings over the past 12 months. It was the most sweeping consolidation since China’s small rural commercial banks were transformed in early 2000 from socialist-style, rural cooperatives to serve farmers and small enterprises overlooked by major state banks.

RUSSIA & UKRAINE

— Russia rules out territory swap with Ukraine amid Kursk standoff. The Kremlin has firmly rejected Ukrainian President Volodymyr Zelenskyy’s suggestion of a territory swap involving Kyiv-held parts of Russia’s Kursk region in exchange for Russian-occupied Ukrainian territory. Kremlin spokesman Dmitry Peskov labeled the proposal “impossible” and said Moscow will never negotiate on territorial exchanges. Zelenskyy told the Guardian he was willing to discuss a straight swap, though he did not specify which Ukrainian territories could be involved. The Ukrainian army seized portions of Kursk during a cross-border operation last August. Peskov reiterated that Ukrainian forces would eventually be expelled from the region, echoing Russian President Vladimir Putin’s December assurance to the public. Russia currently controls nearly 20% of Ukraine, while Ukraine holds around 450 square kilometers (173.7 square miles) of the Kursk region.

— U.S./Russia prisoner swap: Fogel released, Kremlin sees trust-building opportunity. The Kremlin announced that Russia has secured the release of one of its citizens from a U.S. prison in exchange for Marc Fogel, a 63-year-old American teacher detained in Moscow on drug charges. Fogel was flown to Washington on Tuesday and celebrated his freedom with President Donald Trump at the White House. While Russian officials have not disclosed the identity of the freed Russian until their return, the Kremlin emphasized that such exchanges, while not game-changing, contribute to rebuilding trust between Moscow and Washington. Trump called the deal a “step in the right direction” and hinted it could help ease tensions in the ongoing Russia/Ukraine war. U.S. National Security Adviser Mike Waltz described the exchange as a positive sign of goodwill. Trump and Putin have both expressed interest in a future summit to explore potential resolutions to the war, though no date has been set.

WEATHER

— NWS outlook: Moderate Risk of excessive rainfall over parts of Southern California on Thursday; There is a Slight Risk of excessive rainfall over parts of Northern/Central California and Lower Mississippi Valley to the Southern Appalachians on Wednesday... ...Rain/freezing rain over parts of the Mid-Atlantic/Central Appalachians to Lower Great Lakes with 0. 25 inches of ice accumulations possible on Wednesday: Rain/freezing rain over parts of the Southern Plains to the Ohio Valley/Great Lakes with 0. 10 inches of ice accumulations possible on Wednesday... ...Rain/freezing rain over parts of the Pacific Northwest with 0. 10 inches of ice accumulations possible on Wednesday into Thursday; Rain/freezing rain over parts of Northeast the with 0. 01 inches of ice accumulations possible on Thursday... ...There is a Slight Risk of Severe Thunderstorms over parts of the Lower Mississippi Valley and the Southeast on Wednesday......Temperatures will be 25 to 35 degrees below average across the Northern Rockies eastward to the Upper Mississippi Valley and southward to the
Southern Plains.

KEY DATES IN FEBRUARY

12: Consumer Price Index report
13: Producer Price Index-FD | USDA outlook reports for several commodities
14: Retail Sales | Valentine’s Day
16: Daytona 500
17: Presidents Day; U.S. gov’t and market holiday
21: Univ. of Michigan Consumer Sentiment | Existing Home Sales | USDA Cattle on Feed
25: Consumer Confidence | USDA Food Price Outlook
27: Durable Goods Orders | GDP | USDA Outlook Forum | Outlook for U.S. Agricultural Trade report
28: Personal Income and Outlays (PCE Price Index) | International Trade in Goods | USDA Outlook Forum concludes

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