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The Next Fed is meeting is this Tuesday and will announce on Wednesday. The market is currently pricing in a ~2.5% chance of a rate cut. This meeting is certainly one that will be interesting, as before the blackout there has been some clear dissent around where rates should be moving. The Fed has become politicized over the last few years. It is worth looking into its composition.
As you can see the Fed like most institutions has been infected with the “Woke Virus”. Having nearly half of the FOMC with people who espouse views that are clearly not part of the Fed’s mandate. The Federal Reserve’s mandate, as defined by Congress, is commonly known as the dual mandate:
To promote maximum employment
To promote price stability
Let’s start with Adriana Kugler: Academic, made her way through the ivory tower circles with zero real world experience. Served as chief economist in the Department of Labor under Obama. Biden appointee.
Lisa Cook: another academic, never worked in the private sector. A quote from Wikidpedia, “Early in her career, Cook's research focused on international economics, particularly the Russian economy. Later she has broadened her research on economic growth to focus on the economic history of African-Americans.[3] Her research suggested that violence against African-Americans under the Jim Crow laws led to a lower than expected number of actual patents filed; however, a recent review of this research has revealed that the apparent drop in patents was merely an accounting error on her part, having failed to recognize that the source database no longer tracked the data in question.”
Michael Barr: BA in History from Yale and a JD from Yale law school. Never worked in the private sector. No economics degree. Was involved in crafting the Dodd-Frank ACT.
J Powell: Princeton AB Politics; Georgetown University Law Center JD. Private Equity Carlyle Group and founded Severn Capital Partners. No Economics degree
The FOMC is yet another example of partisan nominations where people do not share the same values and even have openly declared agendas that are not part of the Fed’s actual mandate. Mary C. Daly Federal Reserve Bank of SF president, said weeks before SVB, “Climate change is an economic issue we can’t afford to ignore... The impact of these events go well beyond their immediate disruptions. They can destroy wealth, exacerbate existing income inequalities, and—in the most severe cases—displace people permanently.”
It is not only “right wing conspiracy” circles who have begun to notice the Fed’s overreach. Within the last week, even some of the more left leaning economic talking heads have taken note. Larry Summers, Clinton flunky and former Harvard President, "the question of mission creep with independence is an entirely legitimate issue. That should be reviewed and debated." Mohamed El-Erian, chief economic at Allianz, went so far as to call for the resignation of Chairman Powell in order to prodect the Fed’s institutional independence. He added that if Powell stays, continued criticism and pressure would lead to loss of confidence in the Fed.
Other Fed people and more traditional Fed people were speaking out. Kevin Warsh, presumable nominee for next Fed Chairman excoriated Powell as well, saying that regime change is needed at the Fed and conduct of monetary policy has been broken for a long time. Warsh noted that Fed models are out of date and the Fed was ignorant about the productivity gains coming from AI. Warsh cited climate change, DEI etc. as interfering with Fed independence.
Friday we saw Trump walking side by side with Jerome Powell visiting the lavishly expensive renovation of the Fed. Trump made a comment that the cost was 3.2bln as Powell demurred. Trump then showed a paper with a cost. Powell didn’t look well.
So what does the Fed do Wednesday July 30th? Clearly, the markets are suggesting that there is an extremely low probability that the Fed does indeed cut rates. Goldman Sachs last week came out calling for 3 cuts in 25 at the Sept, Oct and Dec meetings. It would be very odd for the Fed to change tact and markets to be so far off. It has happened but only in extreme cases Jan 2008 and March ’23 (longer dated).
Powell will likely use his typical insipid language and say that they are still looking at data and waiting for tariffs to come into effect before they are willing to give up this fight. Meanwhile, June ADP shed 33k jobs in June , first monthly decline since March 2023. NFP in June, weakest monthly gains in two years. Housing starts fell in June .5% yoy . Single- family housing starts fell to 883k- lowest in a year and 10% yoy. Existing home sales fell 2.7%-lowest since Sept 2024. Housing is approx. 16.4% of US GDP. A downturn in housing activity often will portend a downturn in consumer spending.
Regardless of the July decision, it does appear that markets are confident that with Trump’s lambasting and possible successor to Powell, rates are coming down one way or the other. Markets have hit ATHs on QQQs and SPYs. This doesn’t mean that the economy is overheating, only that there is expectation of greener pastures ahead.
The Fed has become another institution that has been infected by the woke mind virus and has lost its independence. The Overton window has shifted and now it is under scrutiny from both sides of the economic peanut gallery. Trump has said he will not fire Powell, but calling out Powell’s obduracy and inert responses will undoubtably make it difficult for Powell’s agenda to succeed.
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