Join institutional investors, analysts and strategists from the world's largest banks: Subscribe today
Already have an account? log in
By Now, Trump’s Probably Right About Rates
In my macro preview for this week, I suggested Jerome Powell might be facing a mutiny at the Fed.
H
H-Man, it may be driven more by the fear that if he cuts and tariffs do cause inflation to rise, then he is in the untenable position of now having to raise rates in the style of Arthur Burns.
Political pressure aside, for the Fed to remain in wait-and-see mode seems to me consistent with its avowed data dependence approach.
Mandate #1: inflation’s descent is acting sticky around 2.5-3.0%, recent ticks have hinted at firming, and if all the back-and-forth ends up at $500BN of tariffs, there will surely be some material economic impact.
Mandate #2: UE remains low, continuing claims hint at weakening but if ICE drives 5% of the US workforce into hiding/El Salvador, labor market tightness might be not far away (not so much for laid-off coders and bankers, but talking aggregates here).
FF is about 100-150 bp above inflation; seems neutral-ish.
Looks like a “what’s the rush” situation, unless one is predicting a more dire shift for #1 or #2, and this Fed seems to be out of the prediction business.
I also see an argument that at this point protecting the Fed’s independence should be unofficial Mandate #3. How that’s best done is debatable, but allowing Trump’s tirades to drive Fed decisions isn’t obviously a good start, in my opinion.
Trump wants 200bps, Powell delivers 25bps. Trump will keep lashing out at Powell after the cut. The Fed is keeping its independence alright.
Right idea —- wrong messenger.
Perfect…
Regarding Trump having a point when arguing for lower rates I’d like to add that HE HIMSELF was a major factor in causing the growth slowdown which now might call for rate cuts. One does not need annotations on the BMO chart to find the effects of “liberation day”