The Fed Announces
The Federal Open Market Committee announcement:
The bond market announcement:
Daily Treasury Par Yield Curve Rates
We didn’t expect anything and weren’t disappointed. The Fed has made its announcements pretty much irrelevant by chaining itself to the expected. Oh the words about its future intent are closely watched, but they have little credibility because the Fed doesn’t really know what it’s going to do … either that or the intervening data are irrelevant. Take your pick … make a meaningful commitment to future policy and ignore the data or be data dependent and make meaningless noise.
It gets more interesting though as the year wears on, because there are still expectations that more cuts are coming. Not that there won’t be, but it would be an uphill battle because inflation data, if there’s a bit of integrity left in them, will show rising price inflation. The increases in asset prices and the decline of the dollar, unless soon reversed, are in the pipeline on their way to final goods and services prices. The Fed doesn’t anyicipate this because it follows lagging data. And it faces an inflation problem because lost its nerve too soon a couple years ago and now its options are limited.
What should it do? Announce a rate hike and immediate cessation to its $40B monthly money printing program. The security it issues – the Federal Reserve Note – is crashing and imposing severe hardship on the American lower and middle classes, transferring wealth up the scale to the upper class. But it won’t, because it is not independent, but controlled by an elite contingent of said upper class.
Next they be walling about with “WIN” (Whip inflation now) badges on…….
I tuned in to Powell’s remarks just in time to hear him try to blame inflation on Trump’s tariffs. So what happened in 2022? They reached back in time to raise inflation?
Oh, and never mind that they’ve been cutting rates and recently even started outright printing again. They know they have dirty hands. If not, then why put the $40B monthly printing in fine print? Pretend it’s just a technical adjustment? If they were proud of it, why are they trying to trivialize it?
Powell tried to justify the rate cuts with his old standby that policy was “restrictive”. He didn’t offer and no one asked him to justify that. In spite of the markets screaming to the contrary via the crashing dollar and soaring asset prices.
He also rattled off a bunch of ecostats as if they were really the basis of FOMC policies. Trying to shoehorn its behavior into statutory mandate terms. But even that’s not enough … they have to give the statutory mandate the forked tongue treatment too. “Dual mandate”??? Guess no one even in the press bothers to actually read it anymore:
12 U.S. Code § 225a – Maintenance of long run growth of monetary and credit aggregates
“The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy’s long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.”
Got that???
What in the heck happened to the part about “shall maintain long run growth of the monetary and credit aggregates commensurate with the economy…”?
This is the main part! It starts with “shall” and is followed by three ancillary “goals”. One mandate and three try-to-haves. The “dual mandate” is a mythological fabrication. Not to mention the Fed has taken it upon itself to redefine “price stability” to its own liking. Why would anybody believe a word of what these people say?
This helps put into focus the fuss about the Fed’s supposed “independence”. It wants to do as it pleases without being accountable to anyone.
Gold has just broken $5400, after having shattered the $5200 and $5300 marks only hours earlier.
Breathtaking. It’s sure not a vote of confidence in the Fed.
Just days ago $5400 was a year end target of at least one of the big investment houses.
>“The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy’s long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.”
The way I read the above is that the Federal Reserve has only one job: adjusting the money supply commensurate with the size of the economy. In properly managing the quantity of money, employment, stable prices, and moderate interest rates are the outcome. It seems to me that the Fed is using maximum employment, pricing, and interest rates as an input into their decision making on the money supply. They’ve got it totally backwards and the really horrible thing is that the only controls they have to twiddle with the outputs being used as input are: 1. lowering interest rates and 2. printing money.
Exactly.
You might ask why no one talks much about the prime directive, except it’s blatantly obvious … the Fed has totally gone rogue on it.
I hold the mass media largely responsible, because if there were any journalism left in it it would called the Fed out on this years ago. I can only surmise it hasn’t because it represents the corporate, financial and political elite that benefit from it.
Gold $5508.
Its almost 1 am here in blighty am off to bed shorty.
I awoke a few minutes ago just to see if Trump has attacked Iran or whatever……the Gold price looks like a misprint!
Gold is up 8.6%…………..silver 11.5%…………..Bloody Hell !
Could someone talk to EJ on this?…………….please?
Off to bed
Mike
Wow!
7 am here in Blighty………………..am stunned!
Wot is happening?
Nuke war……..hyper inflation?
Mike
Meantime those Limey bastards are jumping ship!
https://news.sky.com/story/politics-latest-starmer-to-hold-talks-with-xi-in-beijing-12593360
https://www.bbc.co.uk/news/articles/crrnee01r9jo
They want Indian IT workers to help them build a “Euro-internet”, lock out US company
Locking out US companies is a growing trend. They say nations do not have friends, they have interests. It is in no nation’s best interest to do business under tariff policies that change hourly, and under a constant storm of arbitrary and capricious insults and threats all very public. The US has become a crappy supplier and a nasty customer. Global business will inevitably move elsewhere to avoid the U.S. There may be an investing opportunities to short sell U.S. firms that depend heavily on global trade. Not only the tech giants and software firms but perhaps also Lockheed, Dow chemical, Boeing, Cargill, Ford, Raytheon , and International Paper. Shorting those firms and going long on their best foreign competitors who now get the advantage of tailwinds from “avoid America”.
It’s a shame, really, because properly used, tariffs can be one of the least damaging ways to raise revenue, especially with big trade deficits. But make any tax this volatile and unpredictable and it can be one of the most damaging.
Imagine what it must be like to run any business when the rules can change on a social media post without any warning, and then change again, and again. This just burns up a lot of time and energy that otherwise could be put towards making better products at better prices.
This is part of a broader trend of the rest of the world reducing its allocation to US assets. US stocks were already overvalued relative to the rest, and running reckless deficits and printing dollars and weaponizing them had already provided the world with ample incentive to reduce its reliance on them.
I also agree we could do without the nastiness. It’s just not helping.
From the FT
https://www.ft.com/content/7e8af6ea-6c04-4782-a19a-2708364a56e6?_gl=1*1almcfx*_up*MQ..*_gs*MQ..&gclid=Cj0KCQiAp-zLBhDkARIsABcYc6s1qHhs9ZUAYDVtay_-YT1Dl8h_0Y_4YtbB5B0jFQPb_AjL3wXG6uIaAs-CEALw_wcB&gclsrc=aw.ds&gbraid=0AAAAAC_ArBt4PUI4c9HizUKkvNoSNOIS9
Trump trying to take Alberta?
President Trump has announced his nomination of Kevin Warsh for the next Fed Chairman.
Warsh is perceived as a bit more hawkish, but it’s not as simple as that. He is said to favor lower interest rates but also a smaller balance sheet. Markets appear to be focusing on the latter part this morning. Copper, gold, silver and platinum are all off sharply, stocks and bonds are down, and the dollar is up in forex. Although this is much more than just a reaction to the news, markets having gone the other way too far too fast. Although it could relieve some of the inflationary pressure, it won’t be all of it by any stretch of the imagination; this nomination will not cure the federal deficit nor end the White House’s and Wall Street’s desire for more inflation.
Mixed take here, as I’ve argued the Fed should rely less on rate policy and more on the balance sheet – ultimately abandoning targeting rates altogether – but also that the balance sheet should be restricted to only Treasuries and gold. We will see …
Bugger
He was on the short list for the Gov of the Bank of England………..
Microsoft getting KILLED
We’re seeing a full-on crash in metals. No point in typing out exact figures here because they will be radically different by the time I hit send, but roughly gold -9% silver -27%, platinum-18%, copper -6%.
The slide is hitting resistance though at the trend over the last three months … in short, it’s just the past couple weeks of hyperbolic rally coming back out. The fast money can leave even faster than it came in.
It’s not the Warsh news … that’s just a spark hitting a pile of dry tinder that was already there. If it wasn’t this it would have been something else.
Meanwhile the inflation problem is bigger than any one man. Kevin Warsh could be the second coming of Paul Volcker but runaway federal debt isn’t about to just get up and walk away.
In other words, today’s metals action concludes the rally out of October, but the underlying support for metals prices hasn’t gone away. The rationale for the 60:20:20 portfolio remains intact. As mentioned before though, the bulk of it could shift to other areas of the commodities complex that have so far been left behind.
The Biggest problem for them is this, its not the 1970s now. So much as changed.
In the 70’s you had an uneducated/misinformed public so the SOBs could print & blame the unions or foreign imports …& then the bastards had the front to walk around with “Win” badges on.
On the international stage China was a backward Pig farm & Russia was still CCCP……both not great investment options………………things have changed.
They talk ,they threaten, they lie, they beg…………….& they PRINT.
Mike
It’s tempting to speculate just what might have been going on behind closed doors this week. I can almost picture TSec Bessent taking Trump aside and whispering he needs to do something to rescue the dollar from free fall. Like name Warsh to the Fed.
A coordinated intervention wouldn’t have been beyond imagination either, as I mentioned a few days ago.
RED ALERT:-
Trump did not attack Iran, but he has ATTACKED!
The Epstein files are out & it looks like the gloves have come off.
I know that some are sensitive to the subject matter but even i am shocked
Its MASSIVE unload!
Pentagon papers x 1000
Here’s what the appointment of Warsh to the Fed could mean for interest rates this year
“Warsh has argued for lower interest rates on the belief that AI will significantly boost productivity and push down inflation. Like Trump, he rejects the belief that inflation is caused by the economy growing too fast and workers getting paid too much. Rather, he argues inflation is caused by the government spending too much and printing too much money. He also believes any inflation from tariffs will be a one-off.”
This is confused. On one hand “he argues inflation is caused by the government spending too much and printing too much money”. On the other hand, he “has argued for lower interest rates on the belief that AI will significantly boost productivity and push down inflation”.
These two propositions can’t both be true. If inflation is caused by spending and printing, it can only be reduced with less spending and printing. AI and productivity have nothing to do with it. If technology reduces real costs of production, that’s a real reduction in prices, not a reduction in inflation.
In short, changes in prices can be caused either by real cost changes or inflation, or both. The business of monetary policy is with the second kind.
Technology can and does reduce the costs of production. But if it does, consumer prices should decline. If they don’t, that’s inflation. Pretending it isn’t is tantamount to the government claiming for itself all the benefit of technological advance.
Of course rising consumer prices are even worse. You have both the amount of inflation that offsets real cost declines plus still more. It sounds like Warsh – or the writer’s interpretation of Warsh – is saying this is what he wants. That’s what the Fed’s “2% inflation” target really amounts to.
If there is any new and clear thinking here, it’s escaped me. Don’t sell yer gold yet.