Breakfast Sandwich and the Market

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Breakfast is expensive!

In fact, it’s never been as pricey as it is today.

The average price of a bacon, egg, and cheese breakfast sandwich with a cup of coffee stands at $3.16 today – compared to about $1.88 just before the COVID-19 pandemic arrived in the U.S.

You can see from the chart that the soaring price of eggs (in green) has contributed the most to the higher cost of that meal.

In February, the price of two eggs was $0.98 (a dozen went for about $5.90). Pre-pandemic, those same two eggs cost about $0.25, or a quarter of today’s price.

The price of coffee is also up significantly since before the pandemic. A pound of roast coffee cost about $4 back in December 2019. Today, it’s about $7.20. For the breakfast meal, that equals about $0.37 present day, versus $0.21 back then.

Fed to the Rescue?

So what does this pricey breakfast sandwich mean for the stock market?

Well, to be perfectly honest, the increase in the price of eggs is mostly due to avian flu – which forced farmers to slaughter more than 166 million chickens, most of them egg layers. And the price of coffee is being driven higher by a confluence of factors, including climate change, supply chain disruptions, and increased global demand, according to the Specialty Coffee Association.

But the broader point is that consumer price inflation is proving to be sticky, with the inflation rate hovering around 3%. Sure, that’s way down from the 9% rate we saw back in the summer of 2022. But it’s still too high for the Federal Reserve, which has a target of 2% for the consumer price index.

And that means that Fed Chairman Jerome Powell and the rest of the interest rate setting committee are likely not coming to the rescue in this highly-volatile market, which is down 9% from its February 19 peak, as measured by the S&P 500 (the Nasdaq Composite is already in correction territory).

Normally, a market like this would evoke talk of a “Fed Put.” That’s an interest rate cut designed to buck up investors and put a halt to the market decline – something like a put option that acts as a protective floor under a stock price. The Fed has stepped in many times in the past to implement such a safeguard for investors.

Yet this time around, the Fed may not be able to intervene. Powell and company are not expected to cut the benchmark interest rate today (the announcement on monetary policy will be around 2 p.m. ET this afternoon), or at the next meeting of the committee in May.

The Fed Funds Futures market does expect a quarter point cut in June, but I have my doubts about that. Because if President Trump’s tariffs stay in place and push prices higher, as expected, the Fed would have to consider rate hikes, rather than cuts, to try to rein in inflation.

Worse, if the tariffs and resulting trade war slow the U.S. economy and damage what has been a very healthy jobs market, the Fed will have to choose between fighting higher inflation or rescuing a deteriorating labor market.

And that brings us back to the breakfast sandwich and coffee. In January, Trump threatened to enact a 25% tariff on imports from Colombia – the second-largest supplier of coffee to the U.S., behind only Brazil – if that nation refused to allow deportation planes to land there. That briefly raised fears that coffee prices would spike even higher and sent coffee futures soaring. Luckily for American coffee drinkers, Colombia quickly agreed to Trump’s terms.

Still, it’s beginning to dawn on many Americans – every day – that tariffs can do serious damage to an economy in multiple ways.

So if you find yourself shaking your head at the price of your breakfast sandwich – or any of its components – think about tariffs.

That’s what I’ll be doing.