Big Banks Say the Economy Is Healthier Than It Feels

Despite a backdrop of political uncertainty, trade tensions, and rising consumer prices, America’s largest banks delivered a surprisingly optimistic message last week: The economy is stronger than headlines suggest.

Quarterly earnings reports from JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, and other major banks showed resilience in both consumer and commercial credit markets, as well as solid performance in core banking operations. For investors and consumers alike, the takeaway was clear: Don’t underestimate the American economy.

Consumers Are Keeping Up—Thanks to a Strong Labor Market

All four major consumer banks—JPMorgan, Bank of America, Citigroup, and Wells Fargo—reported low levels of delinquency and charge-offs. In simple terms, people are paying their bills on time, and banks aren’t having to write off large amounts of bad debt.

“While there are nuances around the edges, consumer credit is primarily about the labor market,” said JPMorgan CFO Jeremy Barnum during the bank’s earnings call. “In a world with a 4.1% unemployment rate, it’s just going to be hard—especially in our portfolio—to see a lot of weakness.”

This is a key point. Despite consumer sentiment surveys showing anxiety over inflation and policy uncertainty, people with jobs continue to service their debt responsibly, reinforcing the idea that confidence may be low, but fundamentals are strong.

Commercial Credit Risks Are Contained—for Now

There were a few blips in the commercial lending space. Wells Fargo noted a slight uptick in net charge-offs for business clients, and Citigroup flagged a rise in nonaccrual corporate loans. But in both cases, executives were quick to frame the losses as isolated rather than systemic.

“These were borrower-specific, with little signs of systematic weakness across the portfolio,” said Wells Fargo CFO Michael Santomassimo. At Citigroup, CFO Mark Mason chalked it up to an “idiosyncratic downgrade,” not a broader deterioration.

Translation: yes, there are always trouble spots—but there’s no wave of defaults or credit contagion brewing.

Political Uncertainty and Inflation Still Cloud the Outlook

Despite the upbeat tone from Wall Street, Main Street isn’t feeling quite so secure. Confusion surrounding trade policy under the Trump administration, particularly regarding tariffs, continues to inject volatility into markets and impact consumer prices. Recent inflation data already reflect rising costs tied to import duties, especially on everyday items.

This disconnect between economic performance and consumer perception is worth watching. While banks are operating from a position of strength, uncertainty in fiscal and trade policy could influence corporate behavior, investment decisions, and hiring down the line.

What It Means for Investors

The S&P 500 Bank Index has rebounded sharply in recent months, and strong earnings across the board suggest the rally may have legs. Still, much of the positive narrative hinges on the continuation of low unemployment and a resilient consumer.

For now, bank executives are betting on stability, even in the face of inflation, geopolitical risk, and shifting monetary policy. Whether that optimism proves well-placed will depend on how the macroeconomic story unfolds in the second half of the year.

Bottom Line:
The nation’s largest banks just delivered a collective vote of confidence in the U.S. economy. While consumers feel the pinch of rising prices and policy ambiguity, the underlying data—especially around employment and credit—tell a different story. And for now, at least, the story is one of quiet strength.

Trump, T-Bills, and the Fed:
The Hidden Battle to Curb the U.S. Interest Expense

What do Donald Trump’s efforts to remove Federal Reserve Chair Jerome Powell, new legislation targeting digital stablecoins, and a shift in Treasury debt management have in common? Each plays a surprising role in addressing the skyrocketing interest expense on U.S. government debt—a quiet but potent driver of fiscal pressure and budgetary risk.

The Interest Burden from “The Big Beautiful Bill”

With the passage of Trump’s recent infrastructure and economic package—dubbed the Big Beautiful Bill—federal borrowing surged once again. The cost of that borrowing has become increasingly burdensome.

As near-zero interest era Treasurys from the post-2008 and Covid eras mature, they’re being replaced with fresh notes yielding 4% or more, sharply raising debt-servicing costs. The result? Over $1 trillion in annual interest expense, now outpacing even the U.S. military budget.

This reality has turned debt management into a political and economic battleground.

Trump’s Truth Social Push: Cut Rates, Cut Costs

Former President Trump recently posted on Truth Social, advocating for a multi-point cut in the Fed’s policy rate, which is currently in a 4.25%–4.5% range. His logic: Lowering rates would save the federal government billions in interest on newly issued debt.

While the Fed maintains it doesn’t set rates to manage the Treasury’s balance sheet, Trump’s argument spotlights the tension between monetary independence and fiscal consequences.

“T-Bill and Chill”: A Backdoor Budget Strategy

Strategists at BNP Paribas suggest the Treasury take a “T-bill and chill” approach. By issuing a greater share of short-term T-bills—raising their share from the current 15–20% to 25%—the Treasury could significantly lower its borrowing costs.

Why? Because T-bills yield less than longer-dated notes and bonds. Demand from money market funds and foreign investors—who bought $336 billion worth of T-bills in the past year—remains robust, suggesting that the market could easily absorb the extra supply.

This strategy doesn’t reduce the overall budget deficit, but it does minimize the carrying cost—a win for fiscal stability, at least in the short term.

The Powell-Yellen Tug-of-War

This isn’t the first time short-term debt issuance has stirred controversy. Former Treasury Secretary Janet Yellen faced criticism in 2022 for shifting the issuance mix toward shorter maturities. Ironically, her successor, Scott Bessent, has maintained that same mix without change.

Meanwhile, Jerome Powell has held firm that Treasury financing needs don’t influence Fed decisions. But Trump-aligned voices are pushing for a more coordinated approach.

Former Fed Governor Kevin Warsh, a likely Powell replacement in a Trump administration, recently called for a new Fed-Treasury accord, referencing the post-World War II agreement in 1951 that ended the Fed’s support of low Treasury yields. Warsh suggests that without coordination, policy remains at “cross purposes.”

Is This “Stealth QE”?

Dario Perkins of Global Macro argues that favoring short-term issuance is a form of “stealth QE”—a shadow version of Quantitative Easing. QE typically involves the central bank buying long-term securities to inject liquidity and suppress yields, forcing investors into riskier assets.

While the Fed isn’t actively buying bonds now, the reduction of long-term supply by the Treasury could have a similar effect: suppressing long yields, boosting stock markets, and narrowing credit spreads.

Indeed, the S&P 500 and Nasdaq recently hit new highs, IPOs are heating up, and corporate credit remains cheap. However, for small businesses and consumers, credit remains tight, especially with short-term rates, such as the prime rate, stuck at 7.5%.

Conclusion: A Subtle but Powerful Fiscal Strategy

Trump’s rate-cut crusade, legislative reshaping of digital finance, and the Treasury’s evolving issuance mix all reflect a deeper priority: containing the ballooning interest expense on federal debt.

Whether through overt policy shifts or more subtle maneuvers, such as leaning into T-bills, the fiscal and monetary powers of Washington are being repositioned—not just for economic growth, but also to protect the government’s own bottom line.

The real question: Will these maneuvers be enough to manage the risk, or are they just delaying a reckoning with America’s trillion-dollar interest tab?