As US stocks plunged again on Friday, Donald Trump had a message for Jerome Powell.
“This would be a PERFECT time to cut Interest Rates,” he said, on the way to suggesting Powell has an opportunity to “change his image,” where that means repair a reputation for being “always late.” “CUT INTEREST RATES, JEROME, AND STOP PLAYING POLITICS!” Trump shrieked.
The timing wasn’t a coincidence and no, I don’t mean that Trump’s getting desperate already in the face of flagging stocks (although he surely is). Rather, I mean that Trump’s public remarks on monetary policy came just minutes before Powell was scheduled to address business journalists gathered in Virginia for an annual event hosted by the Society for Advancing Business Editing and Writing.
Plainly, Powell wasn’t going to change the text of his prepared remarks, which didn’t paint the prettiest picture. “Surveys of households and businesses report dimming expectations and higher uncertainty about the outlook,” Powell said, of the shifting macro zeitgeist. Survey respondents, he told the room, “point to the effects of new federal policies, especially related to trade.”
Yes, “especially related to trade.” As you might’ve noticed, Tariff Man’s in some hot water with households and businesses given the read through of what JPMorgan this week characterized as the largest tax hike since 1968.
“While uncertainty remains elevated, it is now becoming clear that the tariff increases will be significantly larger than expected,” Powell went on. By that he means the US tariff rate’s seen jumping 10-fold versus where it stood prior to Trump taking office.
There’s the chart. Or one version of the chart, from BofA. To state the obvious: Consumers and businesses can’t absorb a shock of that magnitude, particularly not when it’s delivered essentially overnight.
Powell said Friday that the economic fallout from the tariffs will likewise be “significantly larger than expected,” and the Fed’s working on the assumption that’ll mean “higher inflation and slower growth.”
It’s possible, Powell remarked, that tariff-related inflation won’t be transitory — that “the effects could be more persistent.” Powell took a lot of criticism last month for un-retiring “transitory” as a description of inflation while regaling reporters following the March FOMC gathering.
In what felt, to me anyway, like another subtle mea culpa for a couple of missteps during last month’s post-meeting press conference, Powell emphasized the importance of longer run inflation expectations. Recall that the marquee measure of those expectations shot up to a three-decade high last month, only for Powell to downplay the increase when queried by reporters on March 19.
When Powell waved away the five- to 10-year University of Michigan series as just one of many indicators the Fed monitors, the Committee only had the preliminary read for March in hand. Bad as it was, that reading was revised even higher in the final readout.
Powell’s attempt to soft-pedal the harrowing spike illustrated above seemed incongruous with the emphasis he placed on the same measure in mid-2022. Although he didn’t address that directly on Friday, he did say it’ll be critical this year for the Fed to “keep longer-term inflation expectations well anchored and to make certain that a one-time increase in the price level does not become an ongoing inflation problem.”
Summing it up, Powell said the Fed’s now grappling with a “highly uncertain outlook” characterized by “elevated risks of both higher unemployment and higher inflation.”
So… stagflation it is.
Can’t we all recognize trump’s genius crashing the markets and the economy… that will surely bring deflation and the lower interest rates he demands!
You and others have been suggesting stagflation for a long time, now. Nine months ago stagflation was a new concept to me, not any more. I’m a beginner at macro economics. I’m here to learn. I spend more time googling definitions, learning concepts, than I do actually reading articles. I have come a long way, thanks to all contributors – helps me stay young and understand what is actually happening as I begin my octogenarian years! Appreciation!
Putin. Russia’s economy is already where everyone else’s is now heading.
Occam’s Razor says it’s unlikely.
As a Manhattanite (me) circa 90’s-00’s it was well known Trump was never accepted by the “It” crowd (Dem/Hollywood). He was in the room, but was considered the creep in the room.
Trump has always desperately wanted to be accepted by the “It” crowd which is likely the why behind presenting himself as a Democrat.
I’d suggest his recent efforts (over the past decade) are a combination of grift and retribution. Some people are just evil at their core.
Trump could make this worse by trying to seize control of the Fed. He’s melting down in the WH now, I wager, looking for someone/thing to lash out at. Let’s hope Bessent has even a little bit of influence.
But perhaps not (MSNBC article)
“My sources say that Scott Bessent is kind of the odd man out here and, in the inner circle that Trump has, he’s not even close to Scott Bessent or listening to him,” she told host Joe Scarborough. “Some have said to me, he’s looking for an exit door to try to get himself to the Fed, because in the last few days he’s really hurting his own credibility and history in the markets.”