Riptide

Fed Minutes: Underlying Concerns

Soundbite: The March FOMC was released last week, and the near-term rise in inflation was noted but downplayed by the staff, who pointed out that longer-term inflation swaps were subdued. Their expectation is that “inflation was projected to return to its previous disinflationary trend.” However, the FOMC voters voiced a general concern that “overall inflation remained above the Committee’s two percent longer-run goal.” 

Chair Powell echoed the same sentiment at his press conference. The key takeaway from the meeting: “Some participants highlighted the possibility that, after several years of above-target inflation, longer-term inflation expectations could become more sensitive to energy price increases.” If oil remains persistently high, these near-term inflation jumps could creep into long-term inflation expectations and cause a reversal in monetary policy.

It always starts here, and the Fed is acutely aware of it: persistently high short-term inflation expectations bleed into long-term ones. Therefore, the longer crude oil prices stay high, the more likely the Fed will shift its rhetoric toward discussing potential rate hikes, eventually acting on it if inflation expectations solidify. The minutes noted that Committee members who previously expected other central banks to “remain on hold or ease policy further—including the European Central Bank, the Bank of Canada, and the Swiss National Bank—were now expected to hike rates modestly this year.” This raises the question as to whether the Fed can stay isolated from rate hikes.

We took note when the staff observed that while front-month crude rose 50%, the “significantly smaller rise of the longer-dated futures prices…indicated expectations that most of the recent increase in oil prices will be relatively short lived. Other market prices were consistent with this.” That fits with our longstanding contention that tracking June and December 2027 WTI crude futures, not spot, is key. But for the time being, the staff remains somewhat complacent, in part because Real Private Domestic Final Purchases (Personal Consumption plus Private Fixed Investment), their preferred growth measure, rose faster than GDP.

The staff flagged one salient risk, that “inflation could prove to be more persistent than anticipated” which was echoed with the FOMC voters:

“Many participants pointed to the risk of inflation remaining elevated for longer than expected amid a persistent increase in oil prices, which could call for rate increases.”

The major takeaways from this meeting, which are likely to be magnified at the April 28-29 meeting, are as follows:

• The vast majority of participants saw elevated upside risks to inflation and downside risks to employment.
• Almost all participants generally viewed the policy rate as within a plausible range of its neutral level.
• Most participants expected the pace of real GDP growth to remain solid in 2026, supported by AI-related investment, continued favorable financial conditions, fiscal policy, and changes in regulatory policy.

The most important passage of all, pertaining to future FOMC communication, may be:  

“Some participants judged that there was a strong case for a two-sided description of the Committee’s future interest rate decisions in the post-meeting statement, reflecting the possibility that upward adjustments to the target range for the federal funds rate could be appropriate if inflation were to remain at above-target levels.”

Using “some” translates to a minority of the Committee, but “some” can turn into “most.” At that point, the market will have to deal with yet another headwind.

T-Minus Zero: Palanthropic

Soundbite: Palantir lost the equivalent of a Dell Computer—the entire company, not a laptop—year-to-date, with half that loss occurring over the last few weeks. The pendulum swung far into negative territory after the new Claude 4.6 release, but the question is whether Palantir and all depressed software stocks will undergo further selling pressure or if the worst has been discounted. Palantir stock was hit from two sides: Anthropic is overtaking them in enterprise AI as Anthropic’s ARR exploded from $9 billion to $30 billion, and the Mythos release is widely regarded as a great leap forward. We consider Palantir’s stock price a useful indicator of investor sentiment toward the threat AI poses to even the strongest competitive moats. One could argue: if Palantir is vulnerable, can any company survive? Or is Palantir the model application company that will greatly benefit from the increased capability of Claude and its competitors?

Undoubtedly, the acceleration is real. However, any visible endpoint for enterprise software still sits beyond the current investment horizon. We can use Palantir’s price action, both on an absolute basis and relative to the broad indices, to calibrate whether sentiment is recovering from deep pessimism. At extremes sits opportunity. There is a possibility that the stock’s selling has hit levels that reinvigorates demand. Keep the PLTR ticker on your radar.

Pave is a portfolio construction and management platform, and as such, we prefer not to focus on any individual stock or suggest that because a stock is oversold, it should be purchased. However, $60 billion in Palantir market cap was just eviscerated between March 25 and April 10, equivalent to half the value of Dell Technologies, which ranks among the top third largest companies in the S&P 500.

Palantir has positioned itself well, embedded in critical systems with strong government and defense ties that make it competitively entrenched, as shown by its most recent quarter’s 70% top-line growth. The rapid emergence of Claude raises questions about growth expectations. Can the company maintain any growth at all?

There is one group of investors who reject the software doom scenario, stressing that Anthropic has been guilty of some hyperbole. They point to Phil Groves’ example, which used Mozilla’s Firefox testing environment and found that “Claude was capable of [uncovering] vulnerabilities two times out of several hundred attempts.” Critically, he pointed out that the browser’s “process sandbox” (the tool used to detect malicious software and then shut down further interaction) was not enabled, meaning the test was stacked in Claude’s favor.

On the other end of the spectrum, Claude Code appears to have made great advances toward a hybrid solution that melds large language model (LLM) pattern recognition with machine learning. We wrote about the need for such an approach to rectify shortcomings after Apple reported problem solving failures in June 2025. While Claude’s Mythos may not be the complete solution, Gary Marcus argues that the new AI model is a strong response to Apple’s critique of LLMs, which concluded that the current models fell short in critical reasoning and offered only “a sophisticated illusion of thinking."

The new Mythos release is clearly a step in a positive direction and pushes AI further toward the preferred hybrid approach. While individual software companies will inevitably fall into a terminal value black hole and not survive the revolution, we do not believe it is wise to condemn the entire industry. We are finding our way through the fog, and Palantir will be one signpost.

Does it Matter That Positioning is Washed Out?

Soundbite: Goldman Sachs reports that despite the VIX dropping to two-month lows, which has already triggered significant buying from volatility-indexed funds, CTAs still have nearly $40 billion in equities to buy. Furthermore, following the expiration of the JP Morgan collar, option dealer positioning is now tilted toward extending rallies and dampening selloffs (the price action this morning is an example). All else equal, the market should rally; however, all is not equal, and these technical factors may ultimately do more to dampen selloffs than drive sustained gains.

Does the tail wag the dog once more? The JP Morgan option collar certainly weighed on price action in the final days of last quarter, but as we wrote a few weeks ago, its expiration creates a more benign backdrop. This makes us a bit wary of selling rallies until the gamma picture at least turns neutral. News flow will dominate, however, and while option desks can dampen the downside, they cannot eliminate it.

Goldman’s data goes back twelve years, and only a handful of times have CTAs been this one-sided in short exposure. The S&P gapping above last Tuesday’s 6616 close will turn trends higher, forcing CTAs to chase, and in size. Goldman also reports that the gamma spread among dealers is the widest it’s been in six years, meaning that “moves higher will be exacerbated…moves lower will be buffered.” In other words, dealer option books are positioned with a synthetic short:

• Long puts that will cause them to buy S&P futures as the market falls, and
• Short calls that will cause dealers to buy S&P futures as the market rises.

Pretty ideal for the bulls, but don’t get complacent. Our models favor non-U.S. securities, reserving the best domestic scores for small caps, including regional banks. Risk remains high, if that is not already painfully obvious. At least these institutional factors could act as a shock absorber on the downside.

What to Look for This Week

(All times E.S.T.)

1. Tuesday, April 14 at 6:00 a.m. National Federation of Independent Business Report on Small Business Economic Trends for March. Key report this week because it will be a snapshot of how small business managers’ outlooks have changed after a full month of high energy prices. Our focus: Outlook to Expand, which has been rising as small business owners look for deregulation and lower taxes to improve the economy throughout 2026. It could give us an idea as to whether they are looking past the oil spike. We will also look at Real Sales for March, which saw a strong contraction in February. NFIB’s Jobs Report was released early as usual, and 52% of owners reported hiring or trying to hire in March, near its lowest level in the six years since the pandemic slowdown.
2. Tuesday, April 14 at 8:30 a.m. March Producer Price Index. Elements of the report will be used with Friday’s CPI March data to produce a forecast for March PCE that may be a discussion point for the FOMC in two weeks but will not have an effect on what will be a near-certain unchanged rate announcement.
3. Tuesday, April 14 at 8:15 a.m. ADP Employment Change Weekly for the week ending March 28. ADP began producing this report weekly, and it has been nothing but solid increases for each of the first three weeks in March, especially March 21. Tuesday, April 14 at 8:55 a.m. Redbook Index for the week ending April 11. Not usually important but any increase will mean that sales have hit a 3-year high.

FOMC Voters Speaking: Two main speakers this week: NY Fed President John Williams speaks Thursday, April 16 at 8:35 a.m., followed by Fed Governor Christopher Waller on Friday, April 17 at 2:00 p.m. on the Economic Outlook. 

Wednesday, April 15 the Beige Book is released at 2:00 p.m. for the April 28-29 FOMC meeting. This could give us insight into any early pressure from energy. The report is put together at the Federal Reserve regional bank level to help Committee members make more informed decisions with input from businesses across the country. Then again, it could shape discussion but not change the decision. Monday, April 13 at 6:20 p.m. Governor Stephen Miran speaks and he is also scheduled for Thursday, April 16 at 10:35 a.m. Tuesday, April 14 at 12:45 p.m. Governor Michael Barr discusses rural investment, and on Wednesday, April 15 at 8:30 a.m. he talks about consumer regulation and supervision. Barr is followed by the Vice Chair for Supervision on Wednesday, April 15 at 1:45 p.m. on Banking Regulation. 

Earnings: The Goldman Sachs Group, Inc. (GS) kicks off earnings season before market on Monday, April 13. Tuesday, April 14 before market, JP Morgan Chase & Company (JPM), Citigroup, Inc. (C), and Wells Fargo & Company (WFC) announce earnings. The JPM call with Barnum as CFO and CEO Dimon is always worthwhile. BlackRock Inc. (BLK) also reports at the same time. On Wednesday, April 15 banks will continue to report, with Bank of America Corporation (BAC) and Morgan Stanley (MS). ASML Holding N.V. (ASML) is also slated for before market earnings on Wednesday. Truck traffic has greatly improved, so we will track J.B. Hunt Transport Services, Inc. (JBHT) earnings call after market. Thursday, April 16 doubleheader: Taiwan Semiconductor Manufacturing Company Limited (TSM) reports before market and Netflix, Inc. (NFLX) after market.

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By Peter Corey

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