Ben Cowan: Is the Fed Heading Toward Checkmate?

In his latest video, macro analyst Ben Cowan breaks down the most recent CPI report and what it means for the Federal Reserve, the labor market, and the broader business cycle. Here are the key takeaways.

What’s Driving the Increase?

Inflation surged to 3.3% in the latest CPI report, up sharply from 2.4% the prior month — a full percentage point increase in a single month. Cowan notes that while markets had anticipated the rise, the speed of the move is a stark reminder of how quickly the inflation picture can change. Energy prices are the primary culprit, driven by supply constraints tied to tensions in the Middle East. Apparel and transportation costs also jumped notably, while housing inflation — which makes up a large portion of the CPI basket — continued its slow decline.

The Fed’s Dilemma

Cowan argues that the Federal Reserve is being cornered. The Fed operates under a dual mandate — maximum employment and price stability — but both are now moving in the wrong direction simultaneously. Markets are currently pricing in a 98% chance the Fed holds rates steady in late April, with over a 90% probability that no rate cuts arrive until October at the earliest. As Cowan puts it, cutting aggressively into rising energy prices would simply trigger another wave of inflation, leaving the Fed with no good options.

A Quietly Weakening Labor Market

The unemployment rate hasn’t spiked yet, but Cowan points to significant underlying weakness. Hiring is falling, job openings are declining, and layoffs — while still subdued — have not yet reflected the full stress building beneath the surface. He notes that historically it is falling asset prices that trigger layoffs, not the other way around, and that feedback loop has not yet been set in motion.

The Larger Business Cycle

Cowan describes the current environment as a late business cycle scenario, drawing comparisons to both the 1996–2000 dotcom era and the 2007–2008 period. He uses the term “checkmate” to describe the point at which the Fed becomes unable to cut rates into a weakening economy — a scenario he believes is approaching but has not yet fully arrived. If inflation continues climbing while the labor market deteriorates, the Fed may find itself too late to act effectively.

What It Means for Investors

Cowan suggests that riskier assets like cryptocurrencies and speculative stocks have already begun pricing in this uncertainty, while the broader stock market has yet to fully reflect it. He points to energy stocks, commodities, metals, and select international markets as areas that have historically held up better in late business cycle environments.

For a full breakdown of Cowan’s analysis, watch the video below.