The latest edition of Trump on Powell hectoring: “He’s always late”, his “termination can’t come fast enough”
In Q4, 2018 during Trump 1, the president made a habit of hectoring Fed Chief Powell to drop the Fed Funds Rate as long-term yields were climbing toward a dangerous decision point. This was curious, and indicative of Trump’s ignorance, because there was no way in hell the Fed was going to cut rates even one teeny with the long-term bond market pushing the upside limits of our 30yr Treasury yield “Continuum” chart.
Yet there was Trump, daily on Twitter haranguing the Fed Chief to take (rate cutting) action. Powell withstood the barrage and then the bond market’s natural signals saw to a yield decline that began in early 2019 and climaxed with a quick but intense deflationary washout in Q1, 2020 amid the pandemic era economic shutdowns.
That was, in my opinion, the final deflationary gasp of what had been decades-long disinflationary signaling by the Continuum’s yield downward yield trend. And it gave license for the Fed and government to manufacture the next inflation phase, which eventually blew the top off the 30yr yield as the it busted through the red limiting moving averages in 2022 and changed the macro to the new one we operate within today.
A macro where sneaky inflation that works pro-cyclical for economies will be a much more difficult, if not impossible trick to pull off. At best, we’ll be looking at a Stagflationary macro, with certain prices and costs rising while economies sputter. Ever since 2022 the message we have taken from the broken Continuum has been that policymakers may try to inflate, but the efficacy, the apparent success of their operations over the decades prior to 2022 is a thing of the past.
“He’s Always Late”
Trump has a point. Sort of. While I poked fun at the “tardy Fed” many times in 2021-2022 as they fell behind the curve in what should have already been an in-progress fight against the inflation created by the Fed and government, the Fed wasted no time in Q1, 2020, blasting the system with balls out inflationary policy (with its trigger being the epic deflationary impulse). What else is a Keynesian debt inflator to do?
When Powell did eventually catch on in 2022…
…we then watched him tilt tilt and tilt some more (because ‘he really means it THIS time!’) at his inflationary windmill. That was of course the tardy Fed wanting us to take it seriously after sitting on its ample behind for way too long before raising the Funds rate (as the market’s inflation signals had already been demanding). After a masterful bailout (once again) of the asset ownership class, the Fed finally decided to throw the non-investor class a bone in the form of income in their savings accounts.
Then Powell continued to tilt. It was funny watching him tilt.
Why?
The bond market had exposed the Fed as behind the curve with the Fed proxy T-bill yield aloft while the 2yr Treasury yield negatively diverged.
Ah, but there was a complication. Biden had former Fed chief Janet Yellen in a side car, no doubt with the current Fed Chief’s ear. My tin foil had told me that they would speak regularly, if not coordinate a balancing act between economic reflation (in service to the coming 2024 presidential election) and monetary policy.
The Fed maintained hawkish appearances while working with the admin inside bond market operations along with fiscal policy to benefit favored areas of the economy into the most divisive US election in modern history.
Part of that balancing act involved keeping the Funds rate high against the fiscal inflationary policies they were brewing all through 2024. Until finally, at a strategic point pre-election (September to be exact), the big double rate cut came. This preceded strong stock market upside into the election. Why, of course.
So Trump has a point. With respect to cutting rates, “he’s always late.”
With respect to raising rates and fighting inflation, “he’s always late” too. I assume Trump won’t mind him being late in that regard if he’s still Fed chief by the time of the next inflation phase. But our original thesis was that Trump was going to be left with a mess in his lap, and though he seems to be taking active measures to ensure that mess, it was coming in one form or another to begin with. The distortions in the chart above have only barely begun to unwind, and it is just one indicator chart among several others indicating the same thing.
Powell may always be late. But in a wider sense, IT’S too late. It has been ever since the Continuum busted a trend that policymakers and large financial interests had fed off like pigs at a trough for decades, got busted.
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Curious to note that Powell not cutting may have contributed to the REPO ‘crisis’ ( I know, everything is a crisis now) in late 2019, which Powell admitted to catching him off guard and had him cutting rates before the deflationary COVID plunge. Like you said Powell is clearly communicating with the Treasury dept. so when push comes to shove I think Powell will always bend over to the bond markets now. If the US IS in some form of Fiscal Dominance, the FEDs decisions & actions won’t provide the same impact on markets & the economy.