The System Is Eating Itself
INTERNAL MEMO: The System Is Eating Itself
TO: Anyone still paying attention
FROM: The desk of someone who has been staring at a rate-cut probability chart for three days straight
RE: The week ending March 1, 2026
CLASSIFICATION: Uncomfortable
Let's start with the Supreme Court, because nobody else is leading with it and they should be.
On February 20th, SCOTUS ruled 6–3 that the president cannot use the International Emergency Economic Powers Act to impose tariffs. A decades-old statute, invoked to slap 25% tariffs on Canada and Mexico and reshape the entire architecture of North American trade, was ruled unconstitutional as a tariff mechanism. The Yale Budget Lab estimates the remaining post-IEEPA tariff regime will still cost the average American household around $800 annually in the short run. That's the stripped-down version. The version with IEEPA would have cost $1,200. The White House response? Announce a new 10% global tariff under Section 122 and vow to fight IEEPA refunds in court.
Read that back slowly. The court says you can't do a thing. Your response is to do a slightly different version of the same thing and refuse to give back the money you collected doing the original thing.
This is the legal and fiscal environment in which the Federal Reserve is supposed to be calibrating monetary policy. Core PCE sitting at 2.8%. PPI for January printed at +0.5% against a 0.3% consensus — 0.8% on the core. Goldman and Morgan Stanley have pushed rate cut expectations to June. Citi and Wells Fargo are still holding out for March, citing labor market softness. The fed funds rate is parked at 3.50–3.75% and the FOMC meets March 17-18, where the updated dot plot will arrive like a weather report for a storm that's already forming outside.
Here is the structural trap, stated plainly: inflation is sticky, the tariff environment is unresolved, the USMCA review looms, and GM is embedding $3–4 billion in expected tariff costs directly into its 2026 investor guidance as a line item. Not a footnote. A line item. When the auto industry bakes trade war costs into forward earnings the way it used to bake in steel prices, something fundamental has shifted about how permanent the damage feels from the inside of the economy.
The Fed has no clean path. Cut too early and re-ignite pricing pressure that tariffs are already fanning. Hold too long and you tip an already softening labor market. January unemployment was 4.3%, technically beating the 4.4% consensus, but payroll growth has decelerated to 60,000 a month and the Challenger layoff data from January was the worst since the global financial crisis. Sixty thousand jobs per month is not a labor market you want to stress-test with another rate hold. But 2.8% core PCE is not a rate-cut invitation either.
The Fed is playing chess in a room where someone keeps rearranging the board.
The Dollar Problem Nobody Wants to Acknowledge
Separate from all of this, quietly, the dollar is deteriorating.
The DXY's early-year slide is being treated as noise. It isn't. When tariffs were imposed on Canada and Mexico in March 2025, the dollar paradoxically weakened — you'd expect the opposite — and what that revealed was the market's growing skepticism about whether tariff-driven trade fragmentation actually strengthens American economic primacy or simply drives capital toward other things. Gold above $5,000. International equities up 8% year-to-date versus the S&P 500's near-flat February. The equal-weight S&P outperforming the cap-weighted index by a meaningful margin.
These are not coincidences. They are a coherent thesis being expressed simultaneously across multiple asset classes. The thesis: the United States is no longer the unchallenged default anchor of global capital allocation.
This is not a permanent verdict. But it is a vote being cast, in real money, in real time.
The Stablecoin Soap Opera
Meanwhile, over in the corner of the room where everyone is arguing about digital dollars, the Clarity Act is threatening to unravel over a question so arcane it sounds like a parody of regulatory capture: should crypto exchanges be allowed to pay users interest on stablecoins they hold in custody?
The GENIUS Act — passed last year, signed into law, celebrated as a historic moment for financial innovation — explicitly prohibits stablecoin issuers from paying interest. The banking industry now wants that prohibition extended to distributors, i.e., exchanges like Coinbase. The Senate Banking Committee was scheduled to mark up the Clarity Act in January. Coinbase threatened to pull support if the yield ban amendment remained. The session was canceled. The White House convened two emergency meetings in February to broker a compromise. No compromise was reached.
Coinbase's chief policy officer went public, saying Congress had already settled this in GENIUS and reopening it now "creates uncertainty and risks the future of the US Dollar as commerce moves onchain." The banking lobby fired back through proxies in the Senate, arguing that allowing exchanges to pay stablecoin yield is functionally a shadow bank deposit product operating outside the deposit insurance regime. They are not wrong. Coinbase is not wrong either. The problem is that both sides are describing the same reality and drawing opposite conclusions about whether it is acceptable.
The March 1 Senate Banking Committee deadline on the yield amendment came and went this weekend with no resolution. This matters more than the breathless GENIUS Act coverage suggested, because the Clarity Act is the broader market structure bill — the one that actually defines which digital assets are commodities versus securities, how exchanges register, how custody rules work. Without it, the GENIUS Act is a payment rail with no map for where the train goes next. The midterm elections are in November. The legislative window is closing faster than the industry wants to admit.
A Brief Observation About What All Of This Has In Common
The tariff fight, the Fed's paralysis, the stablecoin standoff, the USMCA zombie, GM's $4 billion tariff reserve — strip away the specifics and there is a single common thread running through every one of these stories.
Every major structural decision is being made in an environment of deliberate ambiguity maintained by the people who benefit from that ambiguity.
The administration announces new tariffs under a different legal authority the same week SCOTUS voids the old ones. The yield ban fight persists precisely because the outcome determines billions in Coinbase revenue versus billions in deposit protection for banks. The Fed holds because holding preserves optionality. Nobody wants to be the one who closed the door.
Markets are not pricing clarity. They are pricing the absence of clarity — which is why gold is at records, why the equal-weight index is outperforming, why international equities are eating the Mag-7's lunch, why the USMCA is described by the Eurasia Group as a "zombie agreement, neither fully dead nor alive." Capital flows toward whatever offers the least exposure to decisions that haven't been made yet.
The smartest portfolio in the room right now is probably the one with the most options, not the most conviction.
What To Watch This Week
The March 6 NFP print is the first real data that will set the stage for the March 17-18 FOMC meeting. If payrolls surprise to the downside — say, below 50,000 — the June consensus for a rate cut collapses and March becomes live again. If they print above 100,000 with wage growth holding, the Fed holds and the bond market adjusts.
Watch the Senate Banking Committee for any movement on the Clarity Act yield amendment. Any resolution — even a temporary carveout — would be a positive catalyst for COIN, which has been battered by the uncertainty. No resolution means the whole crypto market structure bill risks getting kicked past the midterms, where everything becomes harder.
Watch GM and Ford commentary on tariff guidance revisions. If the $3-4 billion estimate moves higher, you'll hear it in the industrial sector before you see it in the headline indices.
And watch the USMCA background noise. Canada's election is April 28. The current government is negotiating from a position of extraordinary exposure — 20% of Canadian GDP directly tied to U.S. exports. A CUSMA review that goes badly is not just a Canada story. It's a North American supply chain story with a multi-trillion dollar footprint.
Everything is connected. Very little is resolved. The markets know it and are positioning accordingly.
The rest of us are just watching the ambiguity compound.