The Fed Announces
The Federal Open Market Committee announcement:
As usual, the real action is in the bond market, a far more meaningful indicator of interest rates:
Daily Treasury Par Yield Curve Rates
Setting aside the matter of what it should do with its target rate, the FOMC is being disingenuous when it acts or declines to act based on a “wait and see” excuse. There is utterly nothing wrong with acting on the data at hand. If new data later indicate a different course of action, nothing prevents the FOMC from acting on that data when it materializes.
Except possibly its own unfounded dogma that rates may only move in long unidirectional series. No real market behaves that way, and of all markets, changes in short term rates are least disruptive because they result in no price changes. The Fed is transparently using an act-on-forecast model to allow it to avoid having to justify its decisions on facts and to thereby introduce extra-economic considerations into its policymaking. It can forecast or decline to forecast anything it pleases with no fear of being held to account by a sycophantic media for repeatedly being wrong.
In the present case, the FOMC declines to cut its target rate on the pretext that it doesn’t yet know what impact tariffs will have on inflation. It doesn’t bother to explain why it can’t cut now and raise later should the data warrant. This isn’t to say it should cut … given that inflation is higher than zero maybe it should hike. But that’s beside the point, which is that it it knows President Trump wants lower rates and is trying to pressure him on tariffs. For a Fed that insists that politics play no role in its policymaking, this is inexcusable.
Love ’em or hate ’em, tariffs are none of the Fed’s business. Rational people could debate whether they should be up to Congress, but they’re sure not monetary policy. As I’ve pointed out before, they have nothing to do with inflation. Inflation is always and everywhere a monetary phenomenon. The Fed has done a poor job of managing monetary policy, yet deigns to extend its reach into fiscal policy. If it can’t or won’t confine its lust for power to its monetary charge, end it.
I’ve changed my mind. Powell should he fired, and this is what for.
Media are excited by the fact that this FOMC decision is the first since 1993 where there are two dissents from the policy decision. BFD. Interesting as it may be, it’s merely serving as a distraction from the Fed’s monetary malfeasance.
Powell admitted during the press conference that tariffs might result in a one-off increase in inflation. He’s only half wrong here, since he correctly implied it would take ongoing increases in tariffs to produce ongoing increases in consumer prices. Duh. The wrong part is his assumption that inflation=consumer prices. The possibility that real consumer prices can change seems not to have occurred to him.
Alas it’s worse than that, because on the other hand he also held out that a one-time tariff increase might produce ongoing inflation. He did not explain how, nor did the tariff-hating inflation-loving Wall Street media bother to ask.
There apparently is a rational debate as to whether tariffs should be up to Congress playing out in the federal courts now. President Trump is using emergency powers to levy tariffs. The Constitution otherwise expressly delegates to Congress the power to levy tariffs, along with other taxes. Would the Executive also be empowered to raise income taxes under emergency powers?
The issue is likely to be ultimately decided by the Supreme Court. While tariffs in principle are a legitimate form of taxation and appropriate to buffer the effects of foreign government policies on Americans, they are arguably a legislative prerogative and Trump has taken an extreme approach. I could see the Supremes clipping Trump’s tariff authority. If a child abuses his favorite toys, it’s an invitation to Mom and Dad to take them away.
In case you didn’t hear the resounding thud, copper crashed yesterday. Over 20% down in a single session. This apparently on tariff news, the same area from which emerged the last big selloff in April. That led to a smoking 36% rally, and this decline puts copper at the lower bound of a trend channel in effect nearly three years. Just sayin’ …
Let’s talk about gold. While I continue to believe it has a bright shiny future, some starch has come out of it since April and it could chop for a while. It’s entering a seasonally weak period and it’s not getting support from most of its commodity cousins. The Fed’s hawkish bias continues to support the dollar, gold’s main competitor as reserve currency. I continue to believe it could yet dip below $3000 before advancing higher. But would also regard that as an invitation to add to my position.
Until something changes, USDT (US Dollars and Treasuries) look attractive. Stocks are bubbly, also entering a seasonally weak period, and anything more than a 10% decline is likely to move the Fed into dovish mode. That would be the catalyst to get gold moving again, as well as pushing bond prices higher.
Not that it always works that way … when the Fed cut inappropriately last fall the bond market sold off. But cuts in the context of a setback in stock prices, especially backed up by softening ecodata, would likely meet with the bond market’s approval.
Again, long term I am uber-bearish on Treasuries, but as the estimable Wolf Richter says, nothing goes to heck in a straight line.
Okay so this morning we already got the first bit of that softening ecodata. This challenges the hawkish Fed bias only two days after its latest policy announcement, with fed funds futures now favoring a cut at the next meeting. Stocks sold off, the bond market approved, and gold got a boost.
The bond market cut rates immediately. The one year yield plunged to 3.87%, 23 bp below where it was yesterday. Bureaucratically determined rates remain frozen where they were.
By now you’ve probably heard that President Trump fired the BLS Commissioner asserting that the payrolls data were being manipulated, pointing to a pattern of revisions. While it looks suspicious, there’s no way for outsiders to know for sure. And we know that the bureau’s CPI releases are watered down because it tells us so.
I think firing the BLS chief was the wrong move and it subtracts more from confidence in the data than it adds.
But the real problem is putting too much stock in the data to begin with. Non farm payrolls has long been notoriously mushy, noisy, and imprecise. And what is the data used for? The Fed ostensibly uses it to inform monetary policy. Its policymaking record hardly inspires confidence, and the so-called “dual mandate” is part of the problem. If it simply focused on maintaining the value of the security it issues, the dollar, the rest would take care of itself. The Fed has no control over payrolls beyond the short term, and pretending to do so just invites policy myopia.
HHMMMM………
I lost all sense of direction …….God knows what Trump will do next
Trump has lost the plot. He hit a home run with the border and illegal immigration, but has been making a mess everywhere else. Firing federal workers doesn’t shrink the actual size of government, it’s the regulations that are the problem. His tax package made taxes more complicated with all its carveouts. phaseouts, etc.
And while the general proposition of tariffs is sound, he’s been making a mess of them. The latest … 100% tariffs on semiconductors. But if the company is building in the US, it gets an exemption. What does it say about the American business environment if you feel you have to strongarm people to do business here?
Be careful what you wish for. If you’re already near full employment and decide a priori you want more manufacturing jobs, who’s going to provide services? It’s already hard enough to get a plumber, electrician, carpenter, etcetera, and restaurants are already having a hard time with staffing. What good will it do you to have a “good paying job” if you still can’t afford to maintain your home or dine out?
Government’s job is to provide a clean, level playing field and let the free market allocate resources. Economic micromanagement doesn’t work. Even if Trump’s micromanagement were better than the last guy’s micromanagement, what happens when the next guy comes in? Just say no. If the US is a good place to do business they will come. If it’s not, figure out why and fix it.
Oh Dear
https://news.sky.com/story/chancellor-warned-substantial-tax-rises-needed-as-she-faces-impossible-trilemma-13407544
THis little video from Coinbase is having BIG political fall out here in Blighty
https://www.youtube.com/watch?v=l0bmJlrhRg4
BOE cut 0.25% now 4%……inflation trying to pick up…..more taxes on the way
Mega’s dispatch from England: The land of stagflation
Zero growth well close enough……& the headwinds are only just blowing a bit. The full effect of Trump taxes are not yet upon us. Throw into the mix of insane levels of (unserviceable) debt & inflation getting ready climb fast & its not looking good.
The BOE cut rates to 4% yesterday but already they had to inform the powers to be that this might very well be it for this year as inflation & the value of the £ must be factored in. Almost all of Labours “Big ideas” has crashed & burnt & its getting worse.
I went to see old friend yesterday who runs a small engineering shop. “Everyone retiring Mike”…..one firm he works for the youngest guy is 57!….& so goes all the skills with them.
We stopped training people for industrial skills in the 1980’s…& suddenly there are few to replace them.
Mike
Thanks for the dispatch from England, Mike. I’m not familiar with BOE policy history but suspect it’s not wildly different than Fed policy history. We’ve been hearing the argument for several years that the Fed should keep interest rates low in order to ease the burden of government debt. It’s a deeply flawed argument, because it overlooks the fact that low interest rates produce higher government debt in the first place. The lower the costs of borrowing, the greater the incentive to borrow. Using lower interest rates to alleviate an excessive government debt burden is like trying to cure an alcoholic with more booze.
Wot’s this about 39% tax on Gold Swiss bars?
Talk round (our) campfire is its to shift Gold pricing to New York?
Any thoughts?
Mike
Honestly, I stopped even trying to track these ever-changing tariffs. Any effort to understand today’s policy will be obsolete tomorrow. My recollection is this only applies to 1 kg and 100 oz bars. Here’s a report on it:
Possible tariffs on Gold imports into the US cause turmoil on the Gold market – Commerzbank
… and there we have it. CNBC just reported Trump has said gold will not be tariffed.
Mega’s week ahead:- Ice cold or warm meeting?
So. Trump is going to meet Putin……in Alaska.
I see a lot of meaning in the location on so many levels. For a start its showing the American public that like it or not Russia IS the nextdoor neighbour. Next its the location of the greatest land deal ever…………Russia sold Alaska to US.
The location is also very much under US control, the “Vasles” Euroscum or City of London dirtbags will be unlikely to able to amount some sort of false flag incident. I also not he peace deal between Armenia & Azerbaijan, brokered by Trump.
I long suspected that the British would attempt to draw Russia into a fight in the Caucasia having FAILED in UKraine. Now you might say that both have jumped ship & Russia lost power in the area………..i suspect that this was a joint operation to defuse another bomb planted there by City of london.
After getting blown off course by Iran/Israel war…….things might be getting back in place.
NWO= Muti polar world…….bye bye Rules based order
Solid State Silver?
https://discoveryalert.com.au/news/samsung-silver-solid-battery-technology-2025/
Mega’s Sunday special: Cuts everywhere (USA)
I spend my days cruzing the old interwebs looking for information, any information from any source that might enlighten me to what is happening on the ground.
What i found is a contracting economy going on!
Las Vegas is dying, boomers are sadly dropping dead & it seems the younger gen are quite happy to gamble on line from home thank you very much.
Its seems that jacking all the costs up high, charging for everything including parking!!! has done little to help the situation. I watch everything from engineering to female advice sites& boy all of a suddenly the same tales are coming though……….Trump job cuts are happening BIG time.
The guy whom runs an engineering channel is pissed that Elon & Trump just sacked off his wife (Fishers & wildlife) my ex fight pilots tell me (shocking) that the Defence dept is stunting US ARMY Aviation Reserve …..like ALL of it & the Nation Guard is getting cuts as well.
But most gratifying is the large number of Deadbeats whom have been informed that SNAP is getting cut!……..Oh the screams…………& i just love the “Advice” from GOP women suggesting that when going to a job interview it might be a good idea NOT to wear a noise ring, or pink hair or cover ALL TATOOs……………indeed suddenly personal appearance makes sense if you want a job!
Oh & we not even into the depression yet………….. 😉
Mike
Powell won’t get fired until he’s done with his tenure. Hehehe
Mega Monday:- Trump “preps”
As EJ used to say on itulip, “Look at what they are doing not just at what they saying”.
Indeed………..
Trump has cooled things down ahead of his meeting with Putin. He has chilled the war in the Causes & turned his attention to the international drug gangs in Mexico & central America.
I found this development interesting. True the Ukraine government is almost flat out of “Fresh meat” to send to the front but i smell the City of london scum here. Russia can deal with this floatson without help but Trump IS helping.
If i was a drug lord i think i be rather unhappy to find 101/87 Airborne or Rangers Or Seals or Marines “Dropping in” for tea suddenly. Drug paramiltally v Us Special forces is a one way bet!
What is more surprizing is the fact that Trump is shipping in the National Guard to DC. Crime in DC is nothing new, i recall Channel 4 “America football” shows from the 1980s…were they showed crime etc only a short distance from the White house.
………………..yet Trump ships in the National Guard………..like he expecting something?
Mike
The Ukraine war is ending…………….70% of Ukraine want to end the war.
Ukraine defense collapse, Ukraine retreat…….
The little green clown has shipped out his booty…….
Lets see what happens Friday
US CPI rose 0.2% in July from June and 2.7% over last July. This is well over the Fed’s target, which itself is well over price stability, on top of actual inflation being well over the CPI.
Three degrees of over, yet the Fed wants to ease in September. The President wants more inflation. Wall Street wants more inflation, and Silicon Valley wants more inflation. The average American doesn’t. Guess which will get their way.
Just loving all the Wefare Queens getting pissed with not being able to get their hair & nails done with SNAP. Indeed one female whom had 6 kids was getting $4450 a month is now getting $39!
Forget the diet thing right now…….there is a bigger picture forming.
More & more States are demanding the fathers DNA before giving out a birth cert. oh Mommy!
!
Suddenly “Ladies” who fool around & are not careful will get found out. Their guys can dump them like a hot pop coal!
If you look at both policy you can see that the days of “marrying the state” & “we don’t need no man!” are going to come to a close……………….about Bloody time!