Fed Policy Shift: The Fed cut the policy rate to 4% and announced an end to quantitative tightening, signaling easier monetary conditions and a pivot toward holding more Treasuries and shorter-duration assets.
Inflation Framing: Powell emphasized PCE near 2.8–2.9% but introduced a controversial 'non-tariff' lens implying closer to 2.3–2.4%, drawing skepticism about credibility and consistency.
Labor Market: Officials described a 'stable' jobs market meaning near-zero net creation, despite rising layoff headlines and weak prospects for new entrants, with grad school applications rising as a potential canary.
AI Sector Bubble Risk: AI stocks were called out for parabolic moves and concentrated market leadership, with concerns that easy money is fueling asset price inflation despite Powell downplaying rate sensitivity.
Asset Price Dynamics: Reporters highlighted that easing could further inflate AI-related assets and potentially accelerate job-displacing automation, underscoring risk that easy money may worsen imbalances.
Companies Mentioned: Nvidia (NVDA) cited for outsized market cap concentration; Amazon (AMZN) referenced for layoff headlines; Chipotle (CMG) noted as a real-economy bellwether showing demand softness.
Market Outlook: December cut odds are less certain as political pressures rise; growing media scrutiny reflects waning Fed credibility and heightened sensitivity of equities to policy shifts.
Transcript
[music] Welcome back to the Power Market podcast. I'm Ryan McMakin, editor-inchief at the Mises Institute. And with me today, uh, I have Tho Bishop, one of our contributing editors here at the Mises Institute, and also Jonathan Newman, who is one of our economists, one of our our research fellows here at the Mises Institute. And we're glad to have everyone here because we're going to talk about the Fed and uh the Fed and its Federal Open Market Committee had a meeting uh well they concluded it yesterday, Wednesday. We're recording this on Thursday and uh they they lowered the target interest rate, the federal funds rate, the policy rate, whatever you want to call it, and that's now down to 4%. And so yet another reduction in the interest rate and really no surprises there. I think the markets were all expecting this 25 basis point cut uh to bring it down even more. That means a reduction though over the last 13 months of 150 basis points or a full 1 and a half percentage points from where it had been uh early September of 2024. So we're very much in a cutting cycle as far as Fed policy goes. And I I think it's really just a continuation of this return to easy money that uh has been going on for a number of months now. I think at the time we argued that there was really no need for I mean you even using the mainstream conventional thinking about does the Fed cut the interest rate or not. It didn't even fulfill really its own requirements back in September of 2024 because its own standard was that we need to get the inflation rate, the CPI price inflation rate back to 2%. Well, it wasn't back to 2% last fall and it's still not back to 2% here more than a year later. So, it seems to me that they're just not very serious about reducing the overall inflation rate as measured by the CPI. This is price inflation that we're talking about here, not monetary inflation for those of you who are sticklers about terminology when it comes to inflation. Our readers are and then the other >> as well of course I mean we have very exacting readers. I mean [snorts] this this is the this is the power market podcast. We're a little more casual with language here for our written content. Of course, we tend to be much more strict about that in terms of we using the words uh inflation >> but but their voices are heard and they are valued. >> Yes. [laughter] Don't at me bro as we used to say in social media. I mean that's like that's like hundred-year-old slang at this point. I don't even know what uh what is the proper term terminology now. But the uh the so the Fed reduced the the target rate again clearly showing that a they don't care that much about price inflation and two they clearly think there's some sort of need for monetary stimulus which would suggest that they think the economy is weak. And then the other side of it too which further leads into the easy money narrative on this the idea that right they want more monetary stimulus is that they now announced Powell announced at the press conference after the FOMC meeting that they're terminating quantitative tightening come December 1. So what they mean by that under the current context is that they're going to stop uh reducing the Fed balance sheet. So if you remember way back in 2008, the Fed started doing this new thing where they were buying up trillions of dollars of assets. Uh a very new thing was that they were purchasing private uh mortgage back securities and putting those on uh the Fed balance sheet. This helped drive up home prices further, helped protect banks. It was basically a bailout of banks which were heavy on mortgage back securities. Had the had the actual market demand been allowed to play out, a lot of this stuff's value would have plummeted. A lot of this uh mortgage bank security stuff would have just been dumped in the marketplace and it it would have caused a lot of banks and uh quasi banks to to be underwater essentially. So the Fed came in, printed up trillions of dollars and bought mortgage bank security. That was a um that was a key part of quantitative easing as it was occurring at the time. Now through that all also what the Fed was doing was purchasing huge amounts of treasuries even more treasuries than mortgage back securities during that period. Trillions of that as well all with newly printed money. So this added trillions of dollars to the economy. They started to undo that a little bit in 2019 and then COVID happened and then they bought trillions more of that stuff. So there's been sitting for more than 15 years on the books of the Federal Reserve trillions and trillions of dollars of assets that the Fed bought with new money created huge amounts of new monetary inflation. And however, starting in 2022, they started to allow a lot of those securities to mature and then roll off the books so that the the total amount of the Fed's portfolio got very slowly smaller. So, it's been reduced by about uh 2 trillion now out of what had peaked at 9 trillion or so. So, that's stopping. And what they they now say they want to do is uh reconfigure the uh the total assets so that a it's more focused on treasuries. So, they're going to let the mortgage back security stuff roll off and they're going to focus more on treasuries, which is totally par for the course, right? their their number one concern is is stimulating demand for government debt to to prevent government uh uh debt interest rates from climbing too high, which could be crushing for the federal government in terms of um uh terms of the the interest that they have to pay on the debt. So, they're going to do that. they're going to then move more toward being focused on government treasuries and then also they want to bring down um the the the number of long bonds that they have. They they want to be less invested in in these really long-term uh assets as well. So this is all stuff that Powell stated during the meeting. So there's a lot going on at this meeting. Reduction in the in the target rate as well as the end of quantitative tightening. All of which points toward belief in weakness in the economy and also a disregard for the inflationary pressures that that might uh create. So there's lots of lots of good questions I think uh unusually uh there were there was more than one or two decent questions I think during this press conference that Powell did. So we can get into some of that in a little bit. Um but uh let's just kind of get your guys' reactions on on these changes in policy. Uh, Jonathan, right, when when you heard that they were cutting the rate, I I mean, really, what was your initial reaction to this? >> Well, I I wasn't really surprised by it. Um, and I don't think anybody was surprised by it. Everybody was expecting that rate cut. Uh, what was uh surprising is some of the comments that he included at the beginning of the press conference. a part of his uh prepared remarks, he actually he he made this interesting like signal uh regarding the December meeting and he he was basically he was it's almost like he was trying to inject some uncertainty uh into markets by saying that uh it's it's not a foregone conclusion that we're going to he actually said foregone conclusion that we're going to you know keep cutting rates and so he's trying to keep everybody on on the edge of their seats. Uh I mean one way um to interpret that is I mean maybe that's sort of like sort of like a a message to the the people who are on the FOMC because there were there were two descents this time. Uh of course the the new guy Steven um Myron uh he once again dissented by saying he wanted a a 50 basis point uh cut just like last time. But there was another guy, I can't remember his name, who dissented saying that he uh would would have preferred no change in the rate cut. So I wonder if uh >> that was Jonathan, that was the Kansas City guy, just as a just as a point. And I don't know what what it is about the Kansas City Fed, but that seems to be where all the harder money guys hang out. >> Good people. >> Uh that's been true for years. Yeah. I'm not sure. I mean, that's our raw raw Kansas City Fed district 10. I I don't I don't know what's going on there, but yeah, it that was the other guy. I can't remember his name. [clears throat] It was just the Kansas City uh Fed president. >> Yeah, that was that was basically the end of what I was uh trying to say. I think uh Powell maybe he was trying to u he was trying to sort of make a signal that uh the the the members of the FOMC there there's in increasing amounts of disscent at least compared to recent years. Uh and so maybe he's trying to you know tell people that it's okay for us to be sort of unsure. He's he sort of he sort of uh and this happened throughout the press conference. He was sort of alluding to the fact that there's lots of uncertainty. We're in this challenging situation because we have to balance the two sides of our dual mandate. And in the case where there's, you know, softening in the labor market and also we are still not down to 2% price inflation, uh then that means that there's not really a clear path for, you know, setting the federal funds rate. um because you know one of those mandates one one side of that mandate says interest rates should go up and the other one says it should go down according to conventional thinking and so I think maybe with that sort of comment he was he was trying to um maybe anticipate questions from the press uh about disscent saying you know we're all just trying to figure this out together and so it's okay for people to have uh differing opinions but that that was definitely something new I hadn't seen a Fed chair ever you know say something like that Um because remember he was saying even though we've uh cut interest rates this time, we cut interest rates last time, we're not necessarily on a cutting cycle. We're not necessarily going to keep doing this. Um but since that happened, it looks like it it seems like the market is still anticipating another cut in the December meeting. Uh but it's definitely not as m there's not as much certainty about that this time around. Um, I think it's like down to like 60% chance based on market pricing of of a of a cut in December. So, I thought that was interesting and surprising. >> So, yeah, th what was your reaction uh to the Fed announcement? >> I was most curious to see and as Jonathan already alluded to it, Stephen Marin was going to do um as the the Trump presence on the board. Not surprised at all that he wanted something more aggressive than what Pal wanted there. And is this interesting dichotomy that you have going on right now? like I I wanted to a certain extent right like I mean this is a a rate cut um again could have been larger but it was a rate cut you have the end of QT um you know this is a fairly dovish approach by the Fed taking here but they're projecting right oh the economy is going to go is is is still growing strong you know how much of that is trying to play up the headline that Trump wants right hey look the economy is doing doing great don't worry about it I mean at the same time it's the Trump folks that precisely want you know a a more e an easier monetary policy um and so trying to to square those two things from just a rhetorical battle in the the grand politics of modern monetary policy um is a very fascinating thing to uh to to see play out uh live. Um you know, clearly there seems to be some sort of return. You know, it's kind of the forward guidance sort of component to it about forecasting, you know, creating that uncertainty that Jonathan mentioned on the December rate cut is is going to be interesting. I'd bet the under on that. Um if I could get some good betting odds out there right now. Um we'll we'll see where things go there. But, you know, to to your original point, Ryan, like I remember back um early on the process, I think it might have been like a KO event that Jerome Pal was speaking at, and he talked about just how he was warning at that time, this was several years ago now, about how important it is for uh how how dangerous it is for inflation beyond the 2% to become to creep into expectations and how difficult it is to get that genie back in the bottle once that rises. and and it seems that we have given up that battle to your point, but again, POW publicly warned about this several years ago like he recognized the dangers of allowing for an interest rate well above their target rate and yet this is now completely on the back burner. Um and so he has become exactly what he warned about going in the past and it's very interesting. I mean the the issues with QT um you know there's been some expectation that they were going to slow down or or or to freeze the balance sheet um you know with the very very slow runoff that they've had. Um the expectations was that it was not going to be December 1st. Um you know a lot of the markets could kick in but like I mean the full expectation going into this meeting was that it was going to be you know 2026 decision at the earliest. Um there there are concerns I mean they're noting um the rises in repo rates the the concerns about money markets. um the the concerns that there was some turbulence out there with the banking system as a whole and so they're trying to project confidence, right? Don't worry, we know exactly what we're doing. Um they got a lot of questions u from the media about, you know, what is the wisdom of reducing rates at a time where you're trying to claim that the underlying data is very strong. And there's some very interesting quirks about some of the data that Powell is referencing, which I think we're going to talk talk about here in a bit. But it's this projection, hey, look, everything's great. the economy is going great, but we're also going to engage a monetary policy that completely goes against what we're trying to tell you and sell you on on how how great this economy that we find ourselves in right now. And again, it's it's this is typical Fed talk. I mean, now this is particularly surprising, right? This is exactly what should have been expected. Um, but it is very interesting to see in the very serious academic face of drone pow um you talk out of these two very conflicting dynamics here. But this is of course the the joys of uh you know, the fedocracy that we have right now. You know, before we go on, I just got to bring this up as a side issue, though. Did you see that interview with Myin and Sarah Eisen on CNBC where she asked him uh what he thought was going to happen with inflation and he said, "That's that's above my pay grade." [laughter] And then shut up. He didn't say anything more. So, there's just kind of an awkward silence. and then Eizen and then the crew. You could hear people in the studio laughing like what an absurd answer and why why are you here to give an interview if talking about inflation is above your pay grade? And then he talked a little bit about the Fed and how well they meet every six months in order to talk about these things. And then there's another awkward silence and Eisen says, "You mean every six weeks?" He says, "Yeah, every six weeks." That's what I meant. >> Well, I wonder if you showed up to this meeting. Haven't we always wanted more humility from our Fed members? You know, he's just [laughter] >> But yeah, not >> Well, and of course, I don't I don't want to suggest that the other members of the FOMC are brilliant geniuses uh who who are deep thinkers, but I just just the it was kind of to your point right there, though, was right. This is such a deeply political game. It's all about messaging. There's no real interest in discussing real issues here, anything like this. is they just they don't >> well and to that point right is is that you know Fed speak is an important policy tool communication is an important policy tool these were these have been bolstered in recent years and so when you don't have the ability to speak fed speak and and you kind of you let that stuff play out on CNBC like it does matter like it shouldn't right like this this is this is the clown world that we're in this is this is really stupid stuff but like this is the stupid stuff that has been seen as something of institutional importance by the Fed And so like as as silly and ridiculous as this stuff is, it really does matter because by the Fed's own standards of how to conduct itself, like this is a you one of many many many examples of just a decline of norms. Um some of which is like public quorum. >> Yeah. One interesting thing about the change in Fedspeak or or the continuation of Fedspeak is that there was a change with this most recent uh uh press conference because in the past you watch one of these press conferences and Powell is you know constantly referring to how data dependent they are constantly referring to how we're going to wait on the incoming data and then we'll make adjustments as we see fit. And then he had to he had to make sort of a rhetorical change this time around because I mean it's hard to say that you're data dependent when a lot of the data that you depend on is not even there because of the government shutdown. And so like you get he sort of like shuffled his papers a little bit when he's like referring to the sorts of data that they were looking at like they're looking at Indeed and a few other like private um collectors of data that report on employment and job market stuff. And so I I just thought that was really interesting. like he he was sort of put in this corner by the the lack of data availability from the Bureau of Labor Statistics. And so like at least that part of of Fed speak, you know, took a took a pause this time around and it was it was fun to watch and they just squirm around to answer those questions. >> Well, back in my more naive days, right, I assumed the Fed was sitting upon a mountain of data that wasn't publicly released, right? I'm like, "Oh, well, they don't they don't need the the uh the BLS's employment data. They got their own thing, right? They have all these secrets. They have secret knowledge, the good stuff about the economy, right? And now they're sitting up there and they're saying, "Oh, we don't have the publicly released BLS data, so now we don't have anything. We have to rely on indeed.com [laughter] to get data about the employment situations. So, either they're just like they're they're playing the long game and they're still hiding that they have secret information about the economy, or they legit don't. I I I hear an excuse to cut another department right there. [laughter] >> I mean, just astounding. And there were quite a few questions about that from the media gallery. They're like, "Well, since you don't have any data, how do you feel about proceeding with policy?" And you he shifted his papers around, as you say, uh, John, [laughter] and he basically said, "Well, this is why we're proceeding with caution is because we don't actually know what the economic situation is." Oh, fantastic. That's that's great to know. Thanks, guys. These are the people that we're told are like amazing forecasters and know what direction the economy is going in. So, yeah, the whole data dependency myth is uh I think just wearing down a whole lot almost in real time as we see how little it is. I mean, remember when we when people we the nation believed in like forward guidance and that sort of thing where like the Fed was functioning under this like long-term grand plan about how it was going to usher in the economy and then they gave up on that and then it was just well we're just waiting to see what data comes in next month and then we'll decide what to do with policy. Now they openly admit that that they're like basically a few days ahead of policy decisions based on what data comes in. So that's a total difference in narrative from what we were being told 10 years ago for example. So it's um it's quite remarkable. I want to go back to the issue with you Jonathan especially uh about uh the portfolio the asset um the balance sheet where so this is the plan that he had stated and I and I just want to see if it sounds plausible to you. I mean maybe it is. So, so the idea here wasn't just that they would reduce right the balance sheet or that they would stop reducing the balance sheet overall, right? As I said, the balance sheet has declined by a couple trillion over time. Um, but it has become really dependent on a very large minority of assets were mortgage back securities. And so, Towel said we want to reduce that and we want to reduce our long-term obligations or our long-term assets. Uh, yeah, the opposite, right? not the obligations but the assets they hold the long-term cash flow that's supposed to come in. Um they want to get that more down to uh shortterm or at least a shorter term. And however there was an interesting distinction in here is that so [sighs] it's not like if they if they now stop quantitative quantitative tightening what that means is they then are planning to maintain the size of the portfolio. Uh so what they've been doing is it's not like they've been like selling off these assets per se. They've mostly been letting them mature and roll off and so the portfolio has been getting smaller in that way. And that has had a monetary tightening um effect, you know, a mild one, but but it it works that way. However, what they're now saying they want to do is they're they're going to let this stuff mature and then whatever income comes in at maturity, they're they going to use the proceeds from that to purchase treasuries. So, as mortgage back securities are allowed to roll off, they want to take whatever they can get from that and put that money into treasuries. Presumably, this would be then like monetarily neutral in a sense, right? In that, oh, we're not going to print new money to purchase new treasuries. we're just going to use whatever money we got from the the maturing MBS's and and do that. Does that sound like something they could do without really creating new money? Is there going to be enough uh proceeds as as Powell kept calling it coming off the MBS's to to maintain the size of of the portfolio? I really don't know. I mean I mean theoretically yes they they should be able to do that if they do it dollar for dollar. So if a certain um if a certain amount of you know longdated assets are maturing and so they come off of their balance sheet and then they use the same amount to purchase you know shorter term uh securities uh then yes that that wouldn't necessarily you know necessitate a change in the um in the overall size of the Fed's balance sheet. But I think uh I Powell was sort of vague in his in his explanation for as to like why they were doing that. He he was basically just saying we want we want the Fed's assets in terms of duration to match the outstanding like the rest of the universe I think he called it of uh of Treasury debt so that so that the what the Federal Reserve is holding sort of looks like what's outstanding from from the Treasury. Um, but I don't really like in that explanation, I don't really hear like a clear reason as to why like like what what's the point? Why why does it matter uh or what would be the benefit from their perspective of having a balance sheet that has a similar duration as the rest of the outstanding Treasury debt? It I I don't I truly just don't know. I don't know the answer to that question. Uh but I mean it could have something to do with, you know, their ability to uh uh manipulate the yield curve in the future. Uh so like if they have uh if they have more shorter term debt uh in the future that might make it easier for them to you know fiddle with short short-term uh return short-term interest rates in the future. Who knows? I'm I'm not really sure. I haven't done enough research on that to be able to to answer confidently. But I do I do think that Powell's uh the explanation that he gave was lackluster or at least didn't convince me or didn't it it did not explain to me why the Fed would want to do that. though. Is the is there a political reason you see for that why they would want to go shorter term on on their assets? I mean, nothing strikes out at me. >> Yeah. On that. >> Yeah. I'm not I'm not entirely certain exactly what the you know if if you Trump's bow brow beating him on on that necessarily or not. I don't know if there's any concerns in and you know international man [clears throat] or things things like that. But uh you I'm sure there's probably a little bit of political influence and everything the Fed's doing these days though. >> All right. Well, let's look at some of the uh the good questions, I think, from uh uh the the audience on on this one. And I think maybe to to anticipate some of the questions, uh we have to look at what the Fed's reading on employment was for this time. And a lot of the questions led to well, what's the employment situation? Chairman Powell, is is the economy good or bad? So Powell drew a lot on the usual sort of GDP growth thing, but I think people are starting to wise up a little bit to the GDP growth thing where gee GDP is going up and yet my I have a terrible job and I can't pay my bills, right? Like I'm not benefiting from GDP going up and there's a disconnect there. Lots of questions about the K-shaped economy. Uh by lots I mean two or three, right? that that clearly the people at the upper end of the income uh stratum are doing well. People down at at the lower end are are doing far less well. So people are really this is becoming part of the narrative, right? That people have tons of assets, they're doing pretty well with Fed policy. People at the lower end, they don't seem to be benefiting that much, especially as inflation rates continue uh to go up. And so one of the things that really stuck out for me when um Powell was asked about employment is he more than once really emphasized that things are okay as far as employment. He he was really trying to have it both ways. He wanted to say that the economy was strong and stable but at the same time had to admit >> that uh that there are significant challenges for people in terms of getting a job that it's not easy to get a job. So he says things are strong and stable, but then turns around and says, "Well, when I say that the job that the employment situation is stable, what I mean is zero net job creation." [laughter] And so the the explanation there was, yeah, there's not really any job creation. There's just not job cuts. So we start talked about the hiring rate is very very low, but also the job loss rate is very very low. And so, sure, if you have a job, you're fine. And people aren't losing their jobs in mass, which is, by the way, kind of he's kind of pushing his luck there because this was just like the same day that huge amounts of new layoff information came out from Amazon. Yeah. >> And and other firms. I mean, do you guys want to talk about that first before we move on? Just like the employment situation that they that Powell almost totally ignored, right? There was a ton of negative employment news that day. I would think that would be more like of a political hot potato, wouldn't you? >> Though I mean though, I mean I mean [laughter] it's if if you're out there and people are saying, "Oh, 34,000 job losses at Amazon, >> right? >> I that's the thing he's is is he's trying to explain away why this isn't a problem." Um, I mean, because that's not even used as like the justification. I mean, ultimately what what they're really pushing as a justification for the the rate cuts is is less the the labor side than it is concerned about money markets, right? Like I like again, he's not trying to raise the bell there. He's he's trying to rationalize out why the job numbers really aren't as bad as some of these anecdotal reports are, right? And and so like so so even from that that that narrative aspect of it is that he's not leaning into this like oh well this is obviously why we've got to do more here, right? It's it's it's you predicated on financial markets more than it is the labor market and like oh well the only reason the labor market is bad is because of immigration. What was interesting is you actually break down like the the the labor force participation rates. um like the biggest decline like if if you break it down by various demographics, the biggest decline is not um you know Hispanic labor rates or or whatever you you typically associate with immigration labor um and how how much the the you know black markets and in labor are probably you know figuring that it's a different sort of thing but but we're down 5% participation rate uh for for working age white men. It's the biggest demographic that's been hit since the financial crisis. Um it's it's uh it has not recovered. It's the biggest drop off since co you know since 2020 as well. So this is not just like oh go you know the good old days of 20 years ago right um but even since co like that is where a a major aspect of the the the tightness in the labor market is coming from is that you have you've got the the participation rate has dropped significantly for working class you know for working age white men in particular. You look at other demographics it's pretty flat from where it was. It's a slightly it's like two points lower for white women. um other minority groups. So, it's pretty even where it was in pre precession to pre208. Um and so like that aspect of like just trying to blame it on immigration like oh we're just we're deporting more workers and so therefore that is what's really causing some of the sort of stuff. Obviously like you know you know that doesn't tie into some of the the AI concerns or whatever. But like that's where the real issue is and that's what's being completely lost in when in their ways of trying to to massage this this narrative that ignores a lot of, you know, the negative headlines when it comes to, you know, jobs data that they're getting from Indeed. >> Yeah. Jonathan, what's your overall reading on the employment situation? I mean, [laughter] since they're relying on private sector stuff, uh I mean, is it really wise to get out there and say when tens of thousands of people are slated to lose their jobs? Oh, you know, it's there's no big real layoffs. It's just there's not a lot of hiring. I mean, will that message strike a lot of people as plausible? How long can they keep that up? >> Well, another another set of headlines that I've seen. So, of course, I've seen the the big ones about like Amazon and other big employers are are planning layoffs or starting layoffs. So, I've also seen headlines about increases in uh graduate school applications and people trying to, you know, start graduate school. And I've seen that uh uh particularly with law schools. And so that's that's often a a canary in the coal mine as well because you know people see uh or are expecting not a lot of uh you know employment opportunities fresh out of their you know bachelor degree uh program and so they sort of kick the can down the road and they enter graduate school in instead. So that I mean that's another good indicator of of things are not looking great in uh the job market especially for fresh college graduates. Like the unemployment rate for a fresh graduate is is much lower. I can't remember the exact figures but I was looking at it a couple months ago and it's just dismal. It's like the unemployment rate is is is very high for them compared to where it has been in the past. So I mean that's that's just another part of the story. It seems like like we have all these headlines. We're not getting data from the Bureau of Labor Statistics because of the government shutdown. And so like it it truly could be that things are a lot worse than than what Pal Powell was even sort of softly, you know, cushioning himself with like, oh, we we think that there's some problems in the labor market, so we're going to do this 25 basis point cut. Um but it see it seems like you know there's going to be some rough road ahead uh in terms of employment and and yeah for the economy in general. >> Well the next point I was going to make was uh Powell's tacid admission that the unemployment rate would be much higher >> than it is uh if Trump hadn't deported so many people. like he he didn't use the word deportation and he didn't say it was a good thing, but he while he was talking about how yeah, there's not a lot of layoffs, but there's not any new hiring either. That there's basically net zero job creation. And then he goes on to say, yes, the supply of jobs is is very low. Supply of new jobs, right? Supply of jobs available to anybody who wants to get into employment now, uh is very low. However, the supply of workers has gone down considerably. And what were two reasons for that that he listed? He said, "Well, just overall workplace participation has gone down." And what's the other reason the supply has gone down? Because so many immigrants have left the country. So he's basically just admitting to the sort of the Trumpist narrative that uh Americans were losing out on employment to immigrants [laughter] and I'm going to improve your employment prospects by deporting people. And here you have Powell saying, "Yeah, the unemployment rate would be higher if there hadn't been so many people deported in recent years." Which I just thought was amazing. And nobody really followed that up with a question. But the the answer is what's the employment situation? Well, there's no new jobs and thank goodness we deported all those people or the unemployment rate would be much higher. That's what I got from Powell uh yesterday. So, that's not exactly a ringing endorsement of the employment situation, I don't think. >> Yeah. A similar sort of thing happened with the inflation. We're talking about this right before we started recording is uh he he referred to tariff inflation, which is like a brand new term. I've never heard anybody say that sort of thing. Um, and so I think uh like the PCE uh inflation, which is the main one that they look at, I think it was 2.8 or 2.9, something like that. But then he he just sort of like pulled this number out of nowhere, it seems like, where he said if we didn't have the tariffs, then actual PC inflation would be like 2.3 2.4. So we're actually, you know, much closer to our 2% target uh than it really looks like because of these uh tariffs. And so it's like he's he's using the inflation thing uh as a cover for employment and he's also using the tariffs as a cover for not meeting the um their inflation target of 2%. It's just sort of like interesting like the scapegoating that's going on. >> Well, I would somebody else some wag on Twitter said, "Oh, I guess uh Powell just in in invented a new inflation measure today. It's the non-tariff inflation rate." This is just something he threw out. Here's the section from the transcript uh of the the actual exchange with a reporter. A reporter asked him about the inflation rate and you're right, it was PCE and uh that's personal consumption expenditure for normal normal people out there. This is the preferred inflation measure that the that the Fed uses and in recent months that's been like 2.8 2.7 2.9% like really close to 3%. and so not close to the official 2% goal. So somebody asked him about it and he just sort of it's amazing what he just tries to wave away with with a handwave. He says we estimate people have different estimates of of what that is but it might be five or 610. He's talking about like how much effect that tariffs are having on uh on the overall uh price inflation rate. He says and so if it's 2.8 8 for the PCE rate, which is bad, right? That's way closer to 3% than 2%. Then core PCE, not including tariffs, might be 2.3 or 2.4 in that range, something like that, Powell says. So that's not so far from our goal of 2%. So that we look at that and the thing about tariff inflation is the base case uh is that it will come and it will probably will increase further. So what he's saying is if you take things that make PCE go up out of PCE PCE is closer to 2%. So we measured PCE gang and it was close to 3%. However, we have decided to remove from the measure some things that are where prices are increasing and lo and behold it's close to 2%. I mean what sort of nonsense is this? Well we'll just blame it on tariffs. We are 100% back to the old Putin's price hike. Uh [laughter] logistical problems are causing uh CPI to go up. Uh anything but money supply in goods. And so it's really just rem market. >> It's even more than that because again like trying to I mean for one this is what the Fed, you know, this is what how the government's operated quite some time, right? They don't like an official price measure. They don't like a a statistic that's that's going out that's becoming inconvenient. So we'll we'll replace it, right? you know, we we'll take away, you know, food and energy, whatever, and we'll we'll have we'll now use this as different standard. Maybe interesting to see, is there any attempt to systematize this? What I do think is funny though, and this is just a petty point. It's a superficial point, but like remember like the whole brewhaha over egatani and BLS and like all the freaking out, oh, he's going to manipulate the the BLS statistics to benefit Trump. Well, here like again, Pal can do this, right? He can just make up a measure. you can just refer to a measure and like and you don't have any of the sort of same sort of of of you know attention like we can know no one's else is going to you're not going to see this on CNBC oh pal's creating a new measure and it just again this is obvious this is low hanging fruit whatever but but it is just funny how like you know it's it's a national tragedy right people are crying over the integrity of uh these cherished government statistics over here and yet the Fed chair just throws something out there it's like oh okay that makes sense whatever but all to the serving to the point of justifying saying, you know, what are the current policies? Again, like this is this is an obvious point, but it's just funny seeing it play out in real time quite uh you know, quite as frivolously as it was in this uh this this meeting. >> Yeah, this is not something that Powell has submitted in writing with like a footnote explaining the method for how did we calculate non-tariff inflation. It's just something he said and throws it out there like, yeah, we don't have to worry about price inflation because it's really like 2.2% if you just take out tariffs. I'm sure he I'm sure he worked on it really hard on the back of a napkin at a at a luxury gourmet restaurant in DC. >> Well, it it is going to be something because at some point, right, there's there's going to have to be some change into how do you bring back the integrity of the Fed from from a you from their targets, right? And so, is it going to be there's a lot of conversation about okay, we're we're 2% isn't actually optimal and so therefore we're going to increase because we all know 2% is optimal, right? um or they're going to create a new measure. And so I'm interested to see is this just something thrown out there and it's just a one-off, right? Like this is kind of a you know this is a pilot. Well, you we'll see if it it airs or not. Or is is there going to be some sort of effort to rather than raise the Fed's target rate. Are they going to try to redefine it with another measure? Obviously, the tariff thing doesn't quite work as well because, you know, assuming that uh you tariffs are a fair relatively temporary program one way or another, whether it's, you know, political change or courts or however that plays out, you winning negotiations, right? however that plays out. But it will be interesting to see is there future attempts to create a measure that allows for the cover that they need to to have, you know, the sort of credibility that the Fed, you know, expects to project or is it going to be something more more severe than that going forward? >> They they will always be able to, you know, come up with something. This this is something there's a great uh um I mean Milton Friedman for all of his faults, he had some good, you know, oneliners. uh he was he was uh in some talk that he gave he was talking about how the Fed causes inflation and how he was doing his research for his big book um on the history of of money in the United States. Um and he said uh like if you read through the uh the reports from the board of governors throughout the history of the Fed uh you'll see these these com or this common theme that when things are going great uh the Fed is like you know taking all the credit. They'll say, you know, we we have done so much to create this, you know, prosperous situation. Uh it's it's because of our hard work, because of our, you know, wise, you know, technocratic management of the economy, we're able to bring about this great situation. But when things turn bad, when things when you have a recession or excessive price inflation, then the rhetoric always changes to, you know, despite our best intentions, you know, factors outside of our own control have worked to create this terrible situation. So, so like this is something that even Milton Friedman decades ago uh noticed and like you can see throughout the entire history of the Fed whenever they're making these pronouncements. They're always able to point to something, you know, deflect in a certain way, find a scapegoat to to, you know, take the responsibility for bad things happening away from themselves. Uh but then of course when things are going great, when things when things are, you know, fine, people aren't unhappy, then you know they can say things like it's like we're we're doing our job for the American people. Yeah, it's quite remarkable how would they just end up looking great no matter what out of that. I mean, Jonathan, would you say that on a de facto like we don't even have to look to the future to see will they change the inflation standard? Seems to me that on a deacto basis the 2% inflation measures dead. I mean, what do you think? >> Yeah. Yeah. I'm I'm not even sure that uh I'm not even sure de facto it's ever been there because, you know, it's always, you know, bouncing around. Um, I mean, may maybe just depending on the chair, depending on who's on the committee, maybe they actually were sort of committed to 2%. But I mean, you know, even 2% is completely arbitrary. You can find dozens of of articles on the Misus website about about that. Um, but yeah, so the fact that they're cutting rates now uh when Powell for for years has been saying how committed he was, how important it was for the FOMC to get uh price inflation down to 2%. I mean, just shows like I guess all of that was just lying because we we still since the the great, you know, inflation of 2022, we're we still have not seen a single report of of something close to 2%. So, we're still, you know, hovering up above it. Um, so I mean, you were talking about the credibility of of the Fed going to the future. I think I mean, I mean, this is actually a good thing. I think it's losing credibility every day. every meeting is losing credibility and you you sort of see that in uh in some of the questions that are asked of the Fed at these press conferences because it seems like they're >> you know I I've been I've been watching these press conferences for a long time. Um, and like in the past they were all softballs, like all like sort of really easy questions and like there's still there's still a bunch of softballs, still a bunch of things that's like easy for Powell to to respond to, but you like underneath the questions in like these more recent meetings, especially since CO, there's there's some more, you know, like underlying criticism of what the Fed is doing. like there's more of like uh like you know a few meetings ago you said this but now you're doing this so there's more more of those sorts of questions uh or questions about uh like what I brought up earlier is like you guys say that you're always you know dependent on the data but now you don't have this data so what's really guiding your policy choices now um and so that's good to see that's good to see that there's you know some more you know p push back from the journalists in the room although I would ask I would ask some very different questions if I were in in that room. I sort of dream about that one day is being in there at one of those press conferences and being able to ask some of my own questions. But the unfortunate thing about this is that even though the journalists are, you know, there there's more of a critical underlying tone in some of their questions, Powell is still, you know, engaging in Fed speak. He's still, you know, being political in his responses. And at least so far he's been able been able to rhetorically play the game so that the at least from his perspective he doesn't look like a complete failure. He's still able to sort of you know cush in and do the scapegoating. >> Well given all the the rotation and changes to media credentials I'm just excited for, you know, there's a possibility to get a a zero hedge or infowars uh media credential for a future FOMC meeting. That'd be >> ores. That'd be great to me. Um, one thing that's interesting to your point though, um, you know, if you look at Google trends, the the the there's a massive increase in attention to the FOMC, which I just use that as just kind of a more, you know, sterile, you know, less sexy sort of search topic, but you see a noticeable increase starting with about 2022, understandable with inflation rates and all this sort of stuff and, you know, whatever. U, but it hasn't gone like it's it's it's it's you about twice or plus, you know, depending on the peaks and valleys that you get with that data. So, so there's a lot more attention from normal people about these decisions about the Fed and like that's that's a bad thing for the Fed, right? The Fed likes to operate in the shadows. The Fed likes to be boring. The Fed likes to only, you know, show up on Bloomberg, you know, occasionally you in terms of news and that that's been consistent for years now is that, you know, just in terms of Google Trends was the best you can get it just in terms of mass sort of interest component to it like that. That's it's a very striking visual there. And I think that goes to some of the challenges and and again I'm not surprised to see and and and what's interesting about the this questioning in particular relative to like say last meeting is that even though there's there's definitely certain political angles, right? There there's there's not a ton of Trump focus on this the same way that you had last time when a lot of the the demonstration was on Miran, right? Obviously there's there's aspects that play into it. Um you when you touched on things like immigration, whatever, but it's not like he was being asked about, you know, Trump all the time, right? But but you still have a little bit more of that adversarial a little bit more of that questioning that little skeptical sort of component to it which again massive shift massive shift in how the the you know the financial media treats these sort of uh events. >> Yeah. And that's that's not necessarily for the better. I mean it is I mean it is good that you know there's more eyes on the Fed um especially from like ordinary people but you also get like these crazy headlines all the time uh that just like mention the Fed. So, like if you, you know, go to Yahoo Finance or like any or Bloomberg or anything, there's like, you know, some slight change in in the S&P 500 and they'll say, you know, stocks slip as investors await Fed decision. It's like they're just it's like they're just waiting on the Fed and then somehow that means that there's a decrease in equity prices. Just it's just like some like absurd headlines that you see all the time. And like you see sometimes the opposite. It's like the the same the same sort of thing is occurring like there's like we're two days away from what everybody widely expects to be a 25 basis point cut or something like that and somehow that is supposed in the minds of readers of these headlines is supposed to oh obviously that means stocks go up or obviously that means stocks go down. It's like like in these headlines from financial media it's just like absurd sorts of stuff. But but what's interesting about that is that that does show that uh at least pe more people are realizing how much of a big player the Fed is in financial markets. So like even even though like there's sometimes there's like zero logic at all in those headlines. At least people are starting to realize more people are realizing that what the Fed does has huge consequences because as you said though like in the past like nobody was paying attention to the Fed. Uh I mean like go back before you know Ron Paul's presidential campaigns and especially and like you would bring up the Federal Reserve and people like what what is that? But nowadays there's more and more people aware of what it is what it does and that it has uh big consequences. >> I well to the point right of how the the questions have changed over time I think that's like almost almost obvious if you just go back say 18 months Yeah. >> or two years how much the skepticism has increased how how less differential >> Yeah. the questions are now there's still a lot of stupid questions like kind of what to what uh th was talking about since they even though they weren't talking about Trump this whole time they were still fishing for any drama that they could get like well it seems that there was some disagreement on the board this time can you tell us about the drama like it's like it's a reality TV [laughter] show or something tell us about the arguments you had >> right [laughter] it's like reality TV for ugly people and the and so I'm like please can we have a real question um and there were some two of the area well one area that I thought was really interesting was on this issue of AI and he got a couple of questions on this and one of the questions the first question about AI was well you're always talking about how there isn't really a bubble of any kind this isn't a bubble economy but looking at AI stock rel stocks right looking at just the AI industry in general wouldn't you say Mr. chairman that that maybe that constitutes a bubble because I there's a lot of awareness in financial Twitter about how the stock market is basically driven by like 10 stocks, >> right? It's all of these AI related stocks, right? And just it's gone parabolic and real economy stocks are like flat or going down as people run out of money to go out to restaurants and things like this. Chipotle, which has cratered in recent days because they say nobody has money to spend anymore. And that's an growing narrative outside the AI world. But someone say tweeted this morning saying that Nvidia is now the the market cap for Nvidia is now 16% of US GDP. I mean, you look at those sorts of numbers and and so the reporter was asking, well, wouldn't you say that was a bubble? And Powell said, "Well, I don't believe that that money um that that it's that it depends on interest rates." He said, "I don't think interest rate policy affects very much these stock prices." He says, "I don't believe." He didn't present any actual data or anything. He just said, "It's my opinion that uh interest rates don't really affect uh these huge stock prices that are growing up around AI and that, you know, that's not a bubble created by easy money." He said it's it's like speculative narratives and right it's just popular to buy AI stocks right now. It doesn't have anything to do with what we're doing at the Fed. Now, if Brendan Brown, our senior fellow, were here, he would have like a heart attack hearing such a stupid thing uttered, right? Because while he would agree that yes, it's a speculative narrative, but those speculative narratives only get legs when there's a bunch of money slloshing around. So, you can do something with that speculative narrative and just hysterically pour money into an AI firm. I mean, in the ba in the past, it was the fang stocks, right? And now [clears throat] it's switched over to the AI stocks. And so he he just waved that aside. He's like, nah, our interest rate policy has nothing to do with the the stock bubble there. And then later, this was I think this maybe earns the award as the best question of of the day. This is from Michael McKe. Yes. Who delivered >> He's my favorite in the room. Yeah. >> He's he's a smart guy. And so he he even delivered the question with a bit of a smirk. Uh so that makes it even better. >> [laughter] >> where he said he said, "Okay, well, you're you're talking about how we need lower interest rate. We need more accommodative, less restrictive uh policy in order to create more jobs." And and just as an aside, right, the Fed still maintains that it's in a moderately restrictive monetary stance, which I don't think is true. Uh but he's still maintaining that they're still on the restrictive side of things. And so we're we're moving a little bit more toward less restrictive, he's saying. So McKe raises his hand and he says, "Okay, well, you're saying we're going to move toward less restrictive." He says, "But you'll you surely you know, Mr. Jared, [laughter] that that easy money policy contributes to asset price inflation." He's he's like talking to Pow like he's six years old. He's saying, "So easy money drives up asset prices, right?" So he he he's he then says, "So if you're easing money, won't that actually contribute just more maybe to AI stock prices and more of an AI bubble, which seems to actually create job losses?" So he he created this awesome narrative where he's like, "Mr. chairman, isn't it possible that Fed policy to ease money is simply going to feed more money into AI firms, which will then expand AI throughout the larger economy and then result in job losses. So, actually, isn't easy money creating unemployment, which I thought was just a like chef's kiss sort of question. And then Powell just went back to the whole, oh, I just don't believe that easy money contributes to the AI economy. That was it. >> It the most absurd answer to say to say that it's not interest rate sensitive like of course it is and in fact even even in Powell's response he he contradicted himself because when he was talking about like people who are investing in this they consider it like this like sort of speculation they're thinking about the money that they can earn in the long run and he actually referenced net present value which you know to calculate net present value you need an interest rate you need a discount rate to be able to do that and so of course if you push down uh the discount rate then that's going to increase the net present value of those future cash flows So, I mean, it's just completely absurd and like he couldn't even be consistent in his own response. So, yeah, I I I wasn't having a heart attack like Brendan Brown would. I was just like laughing while he was saying that stuff. [laughter] So, yeah, I don't think Powell came out of that meeting looking especially brilliant. Um, and I think that's probably just that comes back to your narrative, uh, Jonathan, which is that when the economy is going well, no one questions the Fed. the Fed can just smoothly sail through all of these meetings and everybody thinks, "Wow, the Fed's brilliant." But when once things start to look a little uncomfortable, people start to get a little concerned about employment, the Fed just doesn't seem to have any answers. Um, so I mean, politically though, where where does Powell go from here? like what's what's the Fed's big move uh politically in terms of just making sure that they continue to to come out smelling sweet as the employment situation worsens? >> Well, I think you know Powell's probably happy that no one's talking about the Fed renovation anymore. So that's a step in the right direction. [laughter] Um, but I mean it's it's again I think the idea that oh well you know again everything's good now December we're going to we're going to you we're going to stay stay easy everything's going great like it's going to be interesting to see um you know I don't think that the administration particularly likes that. Again if if you want to know how the how the the administration thinks about monetary policy look at what Stephen Min's saying. Um you know it's as as difficult as that might be at times. Um, and so they want more. Um, and so if if Pal is really committed, if if Pal's going to try to take this position come, you know, two months from now. Um, and you try to to not further ease, I mean, that's that's what the administration is going to want. They they you pump, baby pump. And, uh, so this is this was a perhaps a slight decrease from the political tension of last meeting, but that that entertension is not going away anytime soon. >> Jonathan, what do you think? leave us with some wise words as we conclude the episode. >> Oh, wise words. Uh, yeah, the Fed is the Fed is losing credibility. Uh, it's fun to watch. Like I I get a lot of entertainment value out of watching these press conferences. You know, I'm just sort of lucky that it's a part of my job to do that sort of thing. Um, and I'm so glad that you agree with me that Mike McKe is like the [laughter] the greatest journalist in the room. Actually, Mark Thoron, whose office is right next to mine, he he has said the same thing. uh that you know Mike McKe is he often has like the best questions and he does a really good job of you know like sneaking in these these sorts of like you're you're saying this line but if you think about in this way then it's actually going against what what you're it's going against your rhetoric. So so he's great uh in terms of like like what's going to happen in the future. I'm I I'm anticipating some big you know political battles some big headlines regarding uh who Trump nominates to be the next Fed chair. what Powell tries to do. Is he going to try to stay on the board? All those sorts of things. So, I I guess I don't have any wisdom. I'm just, you know, looking forward to, you know, eating my popcorn and watching. All right. Well, with that, we'll go ahead and wrap up this all fed episode of Power and Market podcast. Uh, thank you everyone out there for uh tuning in. Uh, by the way, just uh we've got some events coming up, right? We have well we we just concluded our supporter summit. I know in February I will be in Oklahoma City. We'll have a Misa circle going on there talking about entrepreneurship. So keep an eye out for more on that in February. Don't we have an EP? We have a event coming up in Michigan soon. >> Yeah, this this weekend. This weekend. >> Yeah. In Grand Rapids, Michigan for students. It's going to be great. Going to be out why the economy is failing generation Z. I have a feeling the Federal Reserve will be brought up a time or two at that one. So, we'll also have some video content hitting our media channels um you know in the aftermath of that. And after February, one event always recommend uh the our two research conferences that will be in March of next year in beautiful Auburn, Alabama, Libertarian Scholars Conference and the Asham Economics Research Conference. If you've ever been interested in uh presenting an academic paper either on libertarian theory or on uh economics and why the [clears throat] Fed is uh not our friend u you know consider submitting uh a proposal there always a great time or come watch see the cutting edge research in astro economics. >> All right well I think that'll be it for this week. We will be back uh next time with more. So we'll see you then. [music]
Jerome Powell's Just Making Things Up
Summary
Transcript
[music] Welcome back to the Power Market podcast. I'm Ryan McMakin, editor-inchief at the Mises Institute. And with me today, uh, I have Tho Bishop, one of our contributing editors here at the Mises Institute, and also Jonathan Newman, who is one of our economists, one of our our research fellows here at the Mises Institute. And we're glad to have everyone here because we're going to talk about the Fed and uh the Fed and its Federal Open Market Committee had a meeting uh well they concluded it yesterday, Wednesday. We're recording this on Thursday and uh they they lowered the target interest rate, the federal funds rate, the policy rate, whatever you want to call it, and that's now down to 4%. And so yet another reduction in the interest rate and really no surprises there. I think the markets were all expecting this 25 basis point cut uh to bring it down even more. That means a reduction though over the last 13 months of 150 basis points or a full 1 and a half percentage points from where it had been uh early September of 2024. So we're very much in a cutting cycle as far as Fed policy goes. And I I think it's really just a continuation of this return to easy money that uh has been going on for a number of months now. I think at the time we argued that there was really no need for I mean you even using the mainstream conventional thinking about does the Fed cut the interest rate or not. It didn't even fulfill really its own requirements back in September of 2024 because its own standard was that we need to get the inflation rate, the CPI price inflation rate back to 2%. Well, it wasn't back to 2% last fall and it's still not back to 2% here more than a year later. So, it seems to me that they're just not very serious about reducing the overall inflation rate as measured by the CPI. This is price inflation that we're talking about here, not monetary inflation for those of you who are sticklers about terminology when it comes to inflation. Our readers are and then the other >> as well of course I mean we have very exacting readers. I mean [snorts] this this is the this is the power market podcast. We're a little more casual with language here for our written content. Of course, we tend to be much more strict about that in terms of we using the words uh inflation >> but but their voices are heard and they are valued. >> Yes. [laughter] Don't at me bro as we used to say in social media. I mean that's like that's like hundred-year-old slang at this point. I don't even know what uh what is the proper term terminology now. But the uh the so the Fed reduced the the target rate again clearly showing that a they don't care that much about price inflation and two they clearly think there's some sort of need for monetary stimulus which would suggest that they think the economy is weak. And then the other side of it too which further leads into the easy money narrative on this the idea that right they want more monetary stimulus is that they now announced Powell announced at the press conference after the FOMC meeting that they're terminating quantitative tightening come December 1. So what they mean by that under the current context is that they're going to stop uh reducing the Fed balance sheet. So if you remember way back in 2008, the Fed started doing this new thing where they were buying up trillions of dollars of assets. Uh a very new thing was that they were purchasing private uh mortgage back securities and putting those on uh the Fed balance sheet. This helped drive up home prices further, helped protect banks. It was basically a bailout of banks which were heavy on mortgage back securities. Had the had the actual market demand been allowed to play out, a lot of this stuff's value would have plummeted. A lot of this uh mortgage bank security stuff would have just been dumped in the marketplace and it it would have caused a lot of banks and uh quasi banks to to be underwater essentially. So the Fed came in, printed up trillions of dollars and bought mortgage bank security. That was a um that was a key part of quantitative easing as it was occurring at the time. Now through that all also what the Fed was doing was purchasing huge amounts of treasuries even more treasuries than mortgage back securities during that period. Trillions of that as well all with newly printed money. So this added trillions of dollars to the economy. They started to undo that a little bit in 2019 and then COVID happened and then they bought trillions more of that stuff. So there's been sitting for more than 15 years on the books of the Federal Reserve trillions and trillions of dollars of assets that the Fed bought with new money created huge amounts of new monetary inflation. And however, starting in 2022, they started to allow a lot of those securities to mature and then roll off the books so that the the total amount of the Fed's portfolio got very slowly smaller. So, it's been reduced by about uh 2 trillion now out of what had peaked at 9 trillion or so. So, that's stopping. And what they they now say they want to do is uh reconfigure the uh the total assets so that a it's more focused on treasuries. So, they're going to let the mortgage back security stuff roll off and they're going to focus more on treasuries, which is totally par for the course, right? their their number one concern is is stimulating demand for government debt to to prevent government uh uh debt interest rates from climbing too high, which could be crushing for the federal government in terms of um uh terms of the the interest that they have to pay on the debt. So, they're going to do that. they're going to then move more toward being focused on government treasuries and then also they want to bring down um the the the number of long bonds that they have. They they want to be less invested in in these really long-term uh assets as well. So this is all stuff that Powell stated during the meeting. So there's a lot going on at this meeting. Reduction in the in the target rate as well as the end of quantitative tightening. All of which points toward belief in weakness in the economy and also a disregard for the inflationary pressures that that might uh create. So there's lots of lots of good questions I think uh unusually uh there were there was more than one or two decent questions I think during this press conference that Powell did. So we can get into some of that in a little bit. Um but uh let's just kind of get your guys' reactions on on these changes in policy. Uh, Jonathan, right, when when you heard that they were cutting the rate, I I mean, really, what was your initial reaction to this? >> Well, I I wasn't really surprised by it. Um, and I don't think anybody was surprised by it. Everybody was expecting that rate cut. Uh, what was uh surprising is some of the comments that he included at the beginning of the press conference. a part of his uh prepared remarks, he actually he he made this interesting like signal uh regarding the December meeting and he he was basically he was it's almost like he was trying to inject some uncertainty uh into markets by saying that uh it's it's not a foregone conclusion that we're going to he actually said foregone conclusion that we're going to you know keep cutting rates and so he's trying to keep everybody on on the edge of their seats. Uh I mean one way um to interpret that is I mean maybe that's sort of like sort of like a a message to the the people who are on the FOMC because there were there were two descents this time. Uh of course the the new guy Steven um Myron uh he once again dissented by saying he wanted a a 50 basis point uh cut just like last time. But there was another guy, I can't remember his name, who dissented saying that he uh would would have preferred no change in the rate cut. So I wonder if uh >> that was Jonathan, that was the Kansas City guy, just as a just as a point. And I don't know what what it is about the Kansas City Fed, but that seems to be where all the harder money guys hang out. >> Good people. >> Uh that's been true for years. Yeah. I'm not sure. I mean, that's our raw raw Kansas City Fed district 10. I I don't I don't know what's going on there, but yeah, it that was the other guy. I can't remember his name. [clears throat] It was just the Kansas City uh Fed president. >> Yeah, that was that was basically the end of what I was uh trying to say. I think uh Powell maybe he was trying to u he was trying to sort of make a signal that uh the the the members of the FOMC there there's in increasing amounts of disscent at least compared to recent years. Uh and so maybe he's trying to you know tell people that it's okay for us to be sort of unsure. He's he sort of he sort of uh and this happened throughout the press conference. He was sort of alluding to the fact that there's lots of uncertainty. We're in this challenging situation because we have to balance the two sides of our dual mandate. And in the case where there's, you know, softening in the labor market and also we are still not down to 2% price inflation, uh then that means that there's not really a clear path for, you know, setting the federal funds rate. um because you know one of those mandates one one side of that mandate says interest rates should go up and the other one says it should go down according to conventional thinking and so I think maybe with that sort of comment he was he was trying to um maybe anticipate questions from the press uh about disscent saying you know we're all just trying to figure this out together and so it's okay for people to have uh differing opinions but that that was definitely something new I hadn't seen a Fed chair ever you know say something like that Um because remember he was saying even though we've uh cut interest rates this time, we cut interest rates last time, we're not necessarily on a cutting cycle. We're not necessarily going to keep doing this. Um but since that happened, it looks like it it seems like the market is still anticipating another cut in the December meeting. Uh but it's definitely not as m there's not as much certainty about that this time around. Um, I think it's like down to like 60% chance based on market pricing of of a of a cut in December. So, I thought that was interesting and surprising. >> So, yeah, th what was your reaction uh to the Fed announcement? >> I was most curious to see and as Jonathan already alluded to it, Stephen Marin was going to do um as the the Trump presence on the board. Not surprised at all that he wanted something more aggressive than what Pal wanted there. And is this interesting dichotomy that you have going on right now? like I I wanted to a certain extent right like I mean this is a a rate cut um again could have been larger but it was a rate cut you have the end of QT um you know this is a fairly dovish approach by the Fed taking here but they're projecting right oh the economy is going to go is is is still growing strong you know how much of that is trying to play up the headline that Trump wants right hey look the economy is doing doing great don't worry about it I mean at the same time it's the Trump folks that precisely want you know a a more e an easier monetary policy um and so trying to to square those two things from just a rhetorical battle in the the grand politics of modern monetary policy um is a very fascinating thing to uh to to see play out uh live. Um you know, clearly there seems to be some sort of return. You know, it's kind of the forward guidance sort of component to it about forecasting, you know, creating that uncertainty that Jonathan mentioned on the December rate cut is is going to be interesting. I'd bet the under on that. Um if I could get some good betting odds out there right now. Um we'll we'll see where things go there. But, you know, to to your original point, Ryan, like I remember back um early on the process, I think it might have been like a KO event that Jerome Pal was speaking at, and he talked about just how he was warning at that time, this was several years ago now, about how important it is for uh how how dangerous it is for inflation beyond the 2% to become to creep into expectations and how difficult it is to get that genie back in the bottle once that rises. and and it seems that we have given up that battle to your point, but again, POW publicly warned about this several years ago like he recognized the dangers of allowing for an interest rate well above their target rate and yet this is now completely on the back burner. Um and so he has become exactly what he warned about going in the past and it's very interesting. I mean the the issues with QT um you know there's been some expectation that they were going to slow down or or or to freeze the balance sheet um you know with the very very slow runoff that they've had. Um the expectations was that it was not going to be December 1st. Um you know a lot of the markets could kick in but like I mean the full expectation going into this meeting was that it was going to be you know 2026 decision at the earliest. Um there there are concerns I mean they're noting um the rises in repo rates the the concerns about money markets. um the the concerns that there was some turbulence out there with the banking system as a whole and so they're trying to project confidence, right? Don't worry, we know exactly what we're doing. Um they got a lot of questions u from the media about, you know, what is the wisdom of reducing rates at a time where you're trying to claim that the underlying data is very strong. And there's some very interesting quirks about some of the data that Powell is referencing, which I think we're going to talk talk about here in a bit. But it's this projection, hey, look, everything's great. the economy is going great, but we're also going to engage a monetary policy that completely goes against what we're trying to tell you and sell you on on how how great this economy that we find ourselves in right now. And again, it's it's this is typical Fed talk. I mean, now this is particularly surprising, right? This is exactly what should have been expected. Um, but it is very interesting to see in the very serious academic face of drone pow um you talk out of these two very conflicting dynamics here. But this is of course the the joys of uh you know, the fedocracy that we have right now. You know, before we go on, I just got to bring this up as a side issue, though. Did you see that interview with Myin and Sarah Eisen on CNBC where she asked him uh what he thought was going to happen with inflation and he said, "That's that's above my pay grade." [laughter] And then shut up. He didn't say anything more. So, there's just kind of an awkward silence. and then Eizen and then the crew. You could hear people in the studio laughing like what an absurd answer and why why are you here to give an interview if talking about inflation is above your pay grade? And then he talked a little bit about the Fed and how well they meet every six months in order to talk about these things. And then there's another awkward silence and Eisen says, "You mean every six weeks?" He says, "Yeah, every six weeks." That's what I meant. >> Well, I wonder if you showed up to this meeting. Haven't we always wanted more humility from our Fed members? You know, he's just [laughter] >> But yeah, not >> Well, and of course, I don't I don't want to suggest that the other members of the FOMC are brilliant geniuses uh who who are deep thinkers, but I just just the it was kind of to your point right there, though, was right. This is such a deeply political game. It's all about messaging. There's no real interest in discussing real issues here, anything like this. is they just they don't >> well and to that point right is is that you know Fed speak is an important policy tool communication is an important policy tool these were these have been bolstered in recent years and so when you don't have the ability to speak fed speak and and you kind of you let that stuff play out on CNBC like it does matter like it shouldn't right like this this is this is the clown world that we're in this is this is really stupid stuff but like this is the stupid stuff that has been seen as something of institutional importance by the Fed And so like as as silly and ridiculous as this stuff is, it really does matter because by the Fed's own standards of how to conduct itself, like this is a you one of many many many examples of just a decline of norms. Um some of which is like public quorum. >> Yeah. One interesting thing about the change in Fedspeak or or the continuation of Fedspeak is that there was a change with this most recent uh uh press conference because in the past you watch one of these press conferences and Powell is you know constantly referring to how data dependent they are constantly referring to how we're going to wait on the incoming data and then we'll make adjustments as we see fit. And then he had to he had to make sort of a rhetorical change this time around because I mean it's hard to say that you're data dependent when a lot of the data that you depend on is not even there because of the government shutdown. And so like you get he sort of like shuffled his papers a little bit when he's like referring to the sorts of data that they were looking at like they're looking at Indeed and a few other like private um collectors of data that report on employment and job market stuff. And so I I just thought that was really interesting. like he he was sort of put in this corner by the the lack of data availability from the Bureau of Labor Statistics. And so like at least that part of of Fed speak, you know, took a took a pause this time around and it was it was fun to watch and they just squirm around to answer those questions. >> Well, back in my more naive days, right, I assumed the Fed was sitting upon a mountain of data that wasn't publicly released, right? I'm like, "Oh, well, they don't they don't need the the uh the BLS's employment data. They got their own thing, right? They have all these secrets. They have secret knowledge, the good stuff about the economy, right? And now they're sitting up there and they're saying, "Oh, we don't have the publicly released BLS data, so now we don't have anything. We have to rely on indeed.com [laughter] to get data about the employment situations. So, either they're just like they're they're playing the long game and they're still hiding that they have secret information about the economy, or they legit don't. I I I hear an excuse to cut another department right there. [laughter] >> I mean, just astounding. And there were quite a few questions about that from the media gallery. They're like, "Well, since you don't have any data, how do you feel about proceeding with policy?" And you he shifted his papers around, as you say, uh, John, [laughter] and he basically said, "Well, this is why we're proceeding with caution is because we don't actually know what the economic situation is." Oh, fantastic. That's that's great to know. Thanks, guys. These are the people that we're told are like amazing forecasters and know what direction the economy is going in. So, yeah, the whole data dependency myth is uh I think just wearing down a whole lot almost in real time as we see how little it is. I mean, remember when we when people we the nation believed in like forward guidance and that sort of thing where like the Fed was functioning under this like long-term grand plan about how it was going to usher in the economy and then they gave up on that and then it was just well we're just waiting to see what data comes in next month and then we'll decide what to do with policy. Now they openly admit that that they're like basically a few days ahead of policy decisions based on what data comes in. So that's a total difference in narrative from what we were being told 10 years ago for example. So it's um it's quite remarkable. I want to go back to the issue with you Jonathan especially uh about uh the portfolio the asset um the balance sheet where so this is the plan that he had stated and I and I just want to see if it sounds plausible to you. I mean maybe it is. So, so the idea here wasn't just that they would reduce right the balance sheet or that they would stop reducing the balance sheet overall, right? As I said, the balance sheet has declined by a couple trillion over time. Um, but it has become really dependent on a very large minority of assets were mortgage back securities. And so, Towel said we want to reduce that and we want to reduce our long-term obligations or our long-term assets. Uh, yeah, the opposite, right? not the obligations but the assets they hold the long-term cash flow that's supposed to come in. Um they want to get that more down to uh shortterm or at least a shorter term. And however there was an interesting distinction in here is that so [sighs] it's not like if they if they now stop quantitative quantitative tightening what that means is they then are planning to maintain the size of the portfolio. Uh so what they've been doing is it's not like they've been like selling off these assets per se. They've mostly been letting them mature and roll off and so the portfolio has been getting smaller in that way. And that has had a monetary tightening um effect, you know, a mild one, but but it it works that way. However, what they're now saying they want to do is they're they're going to let this stuff mature and then whatever income comes in at maturity, they're they going to use the proceeds from that to purchase treasuries. So, as mortgage back securities are allowed to roll off, they want to take whatever they can get from that and put that money into treasuries. Presumably, this would be then like monetarily neutral in a sense, right? In that, oh, we're not going to print new money to purchase new treasuries. we're just going to use whatever money we got from the the maturing MBS's and and do that. Does that sound like something they could do without really creating new money? Is there going to be enough uh proceeds as as Powell kept calling it coming off the MBS's to to maintain the size of of the portfolio? I really don't know. I mean I mean theoretically yes they they should be able to do that if they do it dollar for dollar. So if a certain um if a certain amount of you know longdated assets are maturing and so they come off of their balance sheet and then they use the same amount to purchase you know shorter term uh securities uh then yes that that wouldn't necessarily you know necessitate a change in the um in the overall size of the Fed's balance sheet. But I think uh I Powell was sort of vague in his in his explanation for as to like why they were doing that. He he was basically just saying we want we want the Fed's assets in terms of duration to match the outstanding like the rest of the universe I think he called it of uh of Treasury debt so that so that the what the Federal Reserve is holding sort of looks like what's outstanding from from the Treasury. Um, but I don't really like in that explanation, I don't really hear like a clear reason as to why like like what what's the point? Why why does it matter uh or what would be the benefit from their perspective of having a balance sheet that has a similar duration as the rest of the outstanding Treasury debt? It I I don't I truly just don't know. I don't know the answer to that question. Uh but I mean it could have something to do with, you know, their ability to uh uh manipulate the yield curve in the future. Uh so like if they have uh if they have more shorter term debt uh in the future that might make it easier for them to you know fiddle with short short-term uh return short-term interest rates in the future. Who knows? I'm I'm not really sure. I haven't done enough research on that to be able to to answer confidently. But I do I do think that Powell's uh the explanation that he gave was lackluster or at least didn't convince me or didn't it it did not explain to me why the Fed would want to do that. though. Is the is there a political reason you see for that why they would want to go shorter term on on their assets? I mean, nothing strikes out at me. >> Yeah. On that. >> Yeah. I'm not I'm not entirely certain exactly what the you know if if you Trump's bow brow beating him on on that necessarily or not. I don't know if there's any concerns in and you know international man [clears throat] or things things like that. But uh you I'm sure there's probably a little bit of political influence and everything the Fed's doing these days though. >> All right. Well, let's look at some of the uh the good questions, I think, from uh uh the the audience on on this one. And I think maybe to to anticipate some of the questions, uh we have to look at what the Fed's reading on employment was for this time. And a lot of the questions led to well, what's the employment situation? Chairman Powell, is is the economy good or bad? So Powell drew a lot on the usual sort of GDP growth thing, but I think people are starting to wise up a little bit to the GDP growth thing where gee GDP is going up and yet my I have a terrible job and I can't pay my bills, right? Like I'm not benefiting from GDP going up and there's a disconnect there. Lots of questions about the K-shaped economy. Uh by lots I mean two or three, right? that that clearly the people at the upper end of the income uh stratum are doing well. People down at at the lower end are are doing far less well. So people are really this is becoming part of the narrative, right? That people have tons of assets, they're doing pretty well with Fed policy. People at the lower end, they don't seem to be benefiting that much, especially as inflation rates continue uh to go up. And so one of the things that really stuck out for me when um Powell was asked about employment is he more than once really emphasized that things are okay as far as employment. He he was really trying to have it both ways. He wanted to say that the economy was strong and stable but at the same time had to admit >> that uh that there are significant challenges for people in terms of getting a job that it's not easy to get a job. So he says things are strong and stable, but then turns around and says, "Well, when I say that the job that the employment situation is stable, what I mean is zero net job creation." [laughter] And so the the explanation there was, yeah, there's not really any job creation. There's just not job cuts. So we start talked about the hiring rate is very very low, but also the job loss rate is very very low. And so, sure, if you have a job, you're fine. And people aren't losing their jobs in mass, which is, by the way, kind of he's kind of pushing his luck there because this was just like the same day that huge amounts of new layoff information came out from Amazon. Yeah. >> And and other firms. I mean, do you guys want to talk about that first before we move on? Just like the employment situation that they that Powell almost totally ignored, right? There was a ton of negative employment news that day. I would think that would be more like of a political hot potato, wouldn't you? >> Though I mean though, I mean I mean [laughter] it's if if you're out there and people are saying, "Oh, 34,000 job losses at Amazon, >> right? >> I that's the thing he's is is he's trying to explain away why this isn't a problem." Um, I mean, because that's not even used as like the justification. I mean, ultimately what what they're really pushing as a justification for the the rate cuts is is less the the labor side than it is concerned about money markets, right? Like I like again, he's not trying to raise the bell there. He's he's trying to rationalize out why the job numbers really aren't as bad as some of these anecdotal reports are, right? And and so like so so even from that that that narrative aspect of it is that he's not leaning into this like oh well this is obviously why we've got to do more here, right? It's it's it's you predicated on financial markets more than it is the labor market and like oh well the only reason the labor market is bad is because of immigration. What was interesting is you actually break down like the the the labor force participation rates. um like the biggest decline like if if you break it down by various demographics, the biggest decline is not um you know Hispanic labor rates or or whatever you you typically associate with immigration labor um and how how much the the you know black markets and in labor are probably you know figuring that it's a different sort of thing but but we're down 5% participation rate uh for for working age white men. It's the biggest demographic that's been hit since the financial crisis. Um it's it's uh it has not recovered. It's the biggest drop off since co you know since 2020 as well. So this is not just like oh go you know the good old days of 20 years ago right um but even since co like that is where a a major aspect of the the the tightness in the labor market is coming from is that you have you've got the the participation rate has dropped significantly for working class you know for working age white men in particular. You look at other demographics it's pretty flat from where it was. It's a slightly it's like two points lower for white women. um other minority groups. So, it's pretty even where it was in pre precession to pre208. Um and so like that aspect of like just trying to blame it on immigration like oh we're just we're deporting more workers and so therefore that is what's really causing some of the sort of stuff. Obviously like you know you know that doesn't tie into some of the the AI concerns or whatever. But like that's where the real issue is and that's what's being completely lost in when in their ways of trying to to massage this this narrative that ignores a lot of, you know, the negative headlines when it comes to, you know, jobs data that they're getting from Indeed. >> Yeah. Jonathan, what's your overall reading on the employment situation? I mean, [laughter] since they're relying on private sector stuff, uh I mean, is it really wise to get out there and say when tens of thousands of people are slated to lose their jobs? Oh, you know, it's there's no big real layoffs. It's just there's not a lot of hiring. I mean, will that message strike a lot of people as plausible? How long can they keep that up? >> Well, another another set of headlines that I've seen. So, of course, I've seen the the big ones about like Amazon and other big employers are are planning layoffs or starting layoffs. So, I've also seen headlines about increases in uh graduate school applications and people trying to, you know, start graduate school. And I've seen that uh uh particularly with law schools. And so that's that's often a a canary in the coal mine as well because you know people see uh or are expecting not a lot of uh you know employment opportunities fresh out of their you know bachelor degree uh program and so they sort of kick the can down the road and they enter graduate school in instead. So that I mean that's another good indicator of of things are not looking great in uh the job market especially for fresh college graduates. Like the unemployment rate for a fresh graduate is is much lower. I can't remember the exact figures but I was looking at it a couple months ago and it's just dismal. It's like the unemployment rate is is is very high for them compared to where it has been in the past. So I mean that's that's just another part of the story. It seems like like we have all these headlines. We're not getting data from the Bureau of Labor Statistics because of the government shutdown. And so like it it truly could be that things are a lot worse than than what Pal Powell was even sort of softly, you know, cushioning himself with like, oh, we we think that there's some problems in the labor market, so we're going to do this 25 basis point cut. Um but it see it seems like you know there's going to be some rough road ahead uh in terms of employment and and yeah for the economy in general. >> Well the next point I was going to make was uh Powell's tacid admission that the unemployment rate would be much higher >> than it is uh if Trump hadn't deported so many people. like he he didn't use the word deportation and he didn't say it was a good thing, but he while he was talking about how yeah, there's not a lot of layoffs, but there's not any new hiring either. That there's basically net zero job creation. And then he goes on to say, yes, the supply of jobs is is very low. Supply of new jobs, right? Supply of jobs available to anybody who wants to get into employment now, uh is very low. However, the supply of workers has gone down considerably. And what were two reasons for that that he listed? He said, "Well, just overall workplace participation has gone down." And what's the other reason the supply has gone down? Because so many immigrants have left the country. So he's basically just admitting to the sort of the Trumpist narrative that uh Americans were losing out on employment to immigrants [laughter] and I'm going to improve your employment prospects by deporting people. And here you have Powell saying, "Yeah, the unemployment rate would be higher if there hadn't been so many people deported in recent years." Which I just thought was amazing. And nobody really followed that up with a question. But the the answer is what's the employment situation? Well, there's no new jobs and thank goodness we deported all those people or the unemployment rate would be much higher. That's what I got from Powell uh yesterday. So, that's not exactly a ringing endorsement of the employment situation, I don't think. >> Yeah. A similar sort of thing happened with the inflation. We're talking about this right before we started recording is uh he he referred to tariff inflation, which is like a brand new term. I've never heard anybody say that sort of thing. Um, and so I think uh like the PCE uh inflation, which is the main one that they look at, I think it was 2.8 or 2.9, something like that. But then he he just sort of like pulled this number out of nowhere, it seems like, where he said if we didn't have the tariffs, then actual PC inflation would be like 2.3 2.4. So we're actually, you know, much closer to our 2% target uh than it really looks like because of these uh tariffs. And so it's like he's he's using the inflation thing uh as a cover for employment and he's also using the tariffs as a cover for not meeting the um their inflation target of 2%. It's just sort of like interesting like the scapegoating that's going on. >> Well, I would somebody else some wag on Twitter said, "Oh, I guess uh Powell just in in invented a new inflation measure today. It's the non-tariff inflation rate." This is just something he threw out. Here's the section from the transcript uh of the the actual exchange with a reporter. A reporter asked him about the inflation rate and you're right, it was PCE and uh that's personal consumption expenditure for normal normal people out there. This is the preferred inflation measure that the that the Fed uses and in recent months that's been like 2.8 2.7 2.9% like really close to 3%. and so not close to the official 2% goal. So somebody asked him about it and he just sort of it's amazing what he just tries to wave away with with a handwave. He says we estimate people have different estimates of of what that is but it might be five or 610. He's talking about like how much effect that tariffs are having on uh on the overall uh price inflation rate. He says and so if it's 2.8 8 for the PCE rate, which is bad, right? That's way closer to 3% than 2%. Then core PCE, not including tariffs, might be 2.3 or 2.4 in that range, something like that, Powell says. So that's not so far from our goal of 2%. So that we look at that and the thing about tariff inflation is the base case uh is that it will come and it will probably will increase further. So what he's saying is if you take things that make PCE go up out of PCE PCE is closer to 2%. So we measured PCE gang and it was close to 3%. However, we have decided to remove from the measure some things that are where prices are increasing and lo and behold it's close to 2%. I mean what sort of nonsense is this? Well we'll just blame it on tariffs. We are 100% back to the old Putin's price hike. Uh [laughter] logistical problems are causing uh CPI to go up. Uh anything but money supply in goods. And so it's really just rem market. >> It's even more than that because again like trying to I mean for one this is what the Fed, you know, this is what how the government's operated quite some time, right? They don't like an official price measure. They don't like a a statistic that's that's going out that's becoming inconvenient. So we'll we'll replace it, right? you know, we we'll take away, you know, food and energy, whatever, and we'll we'll have we'll now use this as different standard. Maybe interesting to see, is there any attempt to systematize this? What I do think is funny though, and this is just a petty point. It's a superficial point, but like remember like the whole brewhaha over egatani and BLS and like all the freaking out, oh, he's going to manipulate the the BLS statistics to benefit Trump. Well, here like again, Pal can do this, right? He can just make up a measure. you can just refer to a measure and like and you don't have any of the sort of same sort of of of you know attention like we can know no one's else is going to you're not going to see this on CNBC oh pal's creating a new measure and it just again this is obvious this is low hanging fruit whatever but but it is just funny how like you know it's it's a national tragedy right people are crying over the integrity of uh these cherished government statistics over here and yet the Fed chair just throws something out there it's like oh okay that makes sense whatever but all to the serving to the point of justifying saying, you know, what are the current policies? Again, like this is this is an obvious point, but it's just funny seeing it play out in real time quite uh you know, quite as frivolously as it was in this uh this this meeting. >> Yeah, this is not something that Powell has submitted in writing with like a footnote explaining the method for how did we calculate non-tariff inflation. It's just something he said and throws it out there like, yeah, we don't have to worry about price inflation because it's really like 2.2% if you just take out tariffs. I'm sure he I'm sure he worked on it really hard on the back of a napkin at a at a luxury gourmet restaurant in DC. >> Well, it it is going to be something because at some point, right, there's there's going to have to be some change into how do you bring back the integrity of the Fed from from a you from their targets, right? And so, is it going to be there's a lot of conversation about okay, we're we're 2% isn't actually optimal and so therefore we're going to increase because we all know 2% is optimal, right? um or they're going to create a new measure. And so I'm interested to see is this just something thrown out there and it's just a one-off, right? Like this is kind of a you know this is a pilot. Well, you we'll see if it it airs or not. Or is is there going to be some sort of effort to rather than raise the Fed's target rate. Are they going to try to redefine it with another measure? Obviously, the tariff thing doesn't quite work as well because, you know, assuming that uh you tariffs are a fair relatively temporary program one way or another, whether it's, you know, political change or courts or however that plays out, you winning negotiations, right? however that plays out. But it will be interesting to see is there future attempts to create a measure that allows for the cover that they need to to have, you know, the sort of credibility that the Fed, you know, expects to project or is it going to be something more more severe than that going forward? >> They they will always be able to, you know, come up with something. This this is something there's a great uh um I mean Milton Friedman for all of his faults, he had some good, you know, oneliners. uh he was he was uh in some talk that he gave he was talking about how the Fed causes inflation and how he was doing his research for his big book um on the history of of money in the United States. Um and he said uh like if you read through the uh the reports from the board of governors throughout the history of the Fed uh you'll see these these com or this common theme that when things are going great uh the Fed is like you know taking all the credit. They'll say, you know, we we have done so much to create this, you know, prosperous situation. Uh it's it's because of our hard work, because of our, you know, wise, you know, technocratic management of the economy, we're able to bring about this great situation. But when things turn bad, when things when you have a recession or excessive price inflation, then the rhetoric always changes to, you know, despite our best intentions, you know, factors outside of our own control have worked to create this terrible situation. So, so like this is something that even Milton Friedman decades ago uh noticed and like you can see throughout the entire history of the Fed whenever they're making these pronouncements. They're always able to point to something, you know, deflect in a certain way, find a scapegoat to to, you know, take the responsibility for bad things happening away from themselves. Uh but then of course when things are going great, when things when things are, you know, fine, people aren't unhappy, then you know they can say things like it's like we're we're doing our job for the American people. Yeah, it's quite remarkable how would they just end up looking great no matter what out of that. I mean, Jonathan, would you say that on a de facto like we don't even have to look to the future to see will they change the inflation standard? Seems to me that on a deacto basis the 2% inflation measures dead. I mean, what do you think? >> Yeah. Yeah. I'm I'm not even sure that uh I'm not even sure de facto it's ever been there because, you know, it's always, you know, bouncing around. Um, I mean, may maybe just depending on the chair, depending on who's on the committee, maybe they actually were sort of committed to 2%. But I mean, you know, even 2% is completely arbitrary. You can find dozens of of articles on the Misus website about about that. Um, but yeah, so the fact that they're cutting rates now uh when Powell for for years has been saying how committed he was, how important it was for the FOMC to get uh price inflation down to 2%. I mean, just shows like I guess all of that was just lying because we we still since the the great, you know, inflation of 2022, we're we still have not seen a single report of of something close to 2%. So, we're still, you know, hovering up above it. Um, so I mean, you were talking about the credibility of of the Fed going to the future. I think I mean, I mean, this is actually a good thing. I think it's losing credibility every day. every meeting is losing credibility and you you sort of see that in uh in some of the questions that are asked of the Fed at these press conferences because it seems like they're >> you know I I've been I've been watching these press conferences for a long time. Um, and like in the past they were all softballs, like all like sort of really easy questions and like there's still there's still a bunch of softballs, still a bunch of things that's like easy for Powell to to respond to, but you like underneath the questions in like these more recent meetings, especially since CO, there's there's some more, you know, like underlying criticism of what the Fed is doing. like there's more of like uh like you know a few meetings ago you said this but now you're doing this so there's more more of those sorts of questions uh or questions about uh like what I brought up earlier is like you guys say that you're always you know dependent on the data but now you don't have this data so what's really guiding your policy choices now um and so that's good to see that's good to see that there's you know some more you know p push back from the journalists in the room although I would ask I would ask some very different questions if I were in in that room. I sort of dream about that one day is being in there at one of those press conferences and being able to ask some of my own questions. But the unfortunate thing about this is that even though the journalists are, you know, there there's more of a critical underlying tone in some of their questions, Powell is still, you know, engaging in Fed speak. He's still, you know, being political in his responses. And at least so far he's been able been able to rhetorically play the game so that the at least from his perspective he doesn't look like a complete failure. He's still able to sort of you know cush in and do the scapegoating. >> Well given all the the rotation and changes to media credentials I'm just excited for, you know, there's a possibility to get a a zero hedge or infowars uh media credential for a future FOMC meeting. That'd be >> ores. That'd be great to me. Um, one thing that's interesting to your point though, um, you know, if you look at Google trends, the the the there's a massive increase in attention to the FOMC, which I just use that as just kind of a more, you know, sterile, you know, less sexy sort of search topic, but you see a noticeable increase starting with about 2022, understandable with inflation rates and all this sort of stuff and, you know, whatever. U, but it hasn't gone like it's it's it's it's you about twice or plus, you know, depending on the peaks and valleys that you get with that data. So, so there's a lot more attention from normal people about these decisions about the Fed and like that's that's a bad thing for the Fed, right? The Fed likes to operate in the shadows. The Fed likes to be boring. The Fed likes to only, you know, show up on Bloomberg, you know, occasionally you in terms of news and that that's been consistent for years now is that, you know, just in terms of Google Trends was the best you can get it just in terms of mass sort of interest component to it like that. That's it's a very striking visual there. And I think that goes to some of the challenges and and again I'm not surprised to see and and and what's interesting about the this questioning in particular relative to like say last meeting is that even though there's there's definitely certain political angles, right? There there's there's not a ton of Trump focus on this the same way that you had last time when a lot of the the demonstration was on Miran, right? Obviously there's there's aspects that play into it. Um you when you touched on things like immigration, whatever, but it's not like he was being asked about, you know, Trump all the time, right? But but you still have a little bit more of that adversarial a little bit more of that questioning that little skeptical sort of component to it which again massive shift massive shift in how the the you know the financial media treats these sort of uh events. >> Yeah. And that's that's not necessarily for the better. I mean it is I mean it is good that you know there's more eyes on the Fed um especially from like ordinary people but you also get like these crazy headlines all the time uh that just like mention the Fed. So, like if you, you know, go to Yahoo Finance or like any or Bloomberg or anything, there's like, you know, some slight change in in the S&P 500 and they'll say, you know, stocks slip as investors await Fed decision. It's like they're just it's like they're just waiting on the Fed and then somehow that means that there's a decrease in equity prices. Just it's just like some like absurd headlines that you see all the time. And like you see sometimes the opposite. It's like the the same the same sort of thing is occurring like there's like we're two days away from what everybody widely expects to be a 25 basis point cut or something like that and somehow that is supposed in the minds of readers of these headlines is supposed to oh obviously that means stocks go up or obviously that means stocks go down. It's like like in these headlines from financial media it's just like absurd sorts of stuff. But but what's interesting about that is that that does show that uh at least pe more people are realizing how much of a big player the Fed is in financial markets. So like even even though like there's sometimes there's like zero logic at all in those headlines. At least people are starting to realize more people are realizing that what the Fed does has huge consequences because as you said though like in the past like nobody was paying attention to the Fed. Uh I mean like go back before you know Ron Paul's presidential campaigns and especially and like you would bring up the Federal Reserve and people like what what is that? But nowadays there's more and more people aware of what it is what it does and that it has uh big consequences. >> I well to the point right of how the the questions have changed over time I think that's like almost almost obvious if you just go back say 18 months Yeah. >> or two years how much the skepticism has increased how how less differential >> Yeah. the questions are now there's still a lot of stupid questions like kind of what to what uh th was talking about since they even though they weren't talking about Trump this whole time they were still fishing for any drama that they could get like well it seems that there was some disagreement on the board this time can you tell us about the drama like it's like it's a reality TV [laughter] show or something tell us about the arguments you had >> right [laughter] it's like reality TV for ugly people and the and so I'm like please can we have a real question um and there were some two of the area well one area that I thought was really interesting was on this issue of AI and he got a couple of questions on this and one of the questions the first question about AI was well you're always talking about how there isn't really a bubble of any kind this isn't a bubble economy but looking at AI stock rel stocks right looking at just the AI industry in general wouldn't you say Mr. chairman that that maybe that constitutes a bubble because I there's a lot of awareness in financial Twitter about how the stock market is basically driven by like 10 stocks, >> right? It's all of these AI related stocks, right? And just it's gone parabolic and real economy stocks are like flat or going down as people run out of money to go out to restaurants and things like this. Chipotle, which has cratered in recent days because they say nobody has money to spend anymore. And that's an growing narrative outside the AI world. But someone say tweeted this morning saying that Nvidia is now the the market cap for Nvidia is now 16% of US GDP. I mean, you look at those sorts of numbers and and so the reporter was asking, well, wouldn't you say that was a bubble? And Powell said, "Well, I don't believe that that money um that that it's that it depends on interest rates." He said, "I don't think interest rate policy affects very much these stock prices." He says, "I don't believe." He didn't present any actual data or anything. He just said, "It's my opinion that uh interest rates don't really affect uh these huge stock prices that are growing up around AI and that, you know, that's not a bubble created by easy money." He said it's it's like speculative narratives and right it's just popular to buy AI stocks right now. It doesn't have anything to do with what we're doing at the Fed. Now, if Brendan Brown, our senior fellow, were here, he would have like a heart attack hearing such a stupid thing uttered, right? Because while he would agree that yes, it's a speculative narrative, but those speculative narratives only get legs when there's a bunch of money slloshing around. So, you can do something with that speculative narrative and just hysterically pour money into an AI firm. I mean, in the ba in the past, it was the fang stocks, right? And now [clears throat] it's switched over to the AI stocks. And so he he just waved that aside. He's like, nah, our interest rate policy has nothing to do with the the stock bubble there. And then later, this was I think this maybe earns the award as the best question of of the day. This is from Michael McKe. Yes. Who delivered >> He's my favorite in the room. Yeah. >> He's he's a smart guy. And so he he even delivered the question with a bit of a smirk. Uh so that makes it even better. >> [laughter] >> where he said he said, "Okay, well, you're you're talking about how we need lower interest rate. We need more accommodative, less restrictive uh policy in order to create more jobs." And and just as an aside, right, the Fed still maintains that it's in a moderately restrictive monetary stance, which I don't think is true. Uh but he's still maintaining that they're still on the restrictive side of things. And so we're we're moving a little bit more toward less restrictive, he's saying. So McKe raises his hand and he says, "Okay, well, you're saying we're going to move toward less restrictive." He says, "But you'll you surely you know, Mr. Jared, [laughter] that that easy money policy contributes to asset price inflation." He's he's like talking to Pow like he's six years old. He's saying, "So easy money drives up asset prices, right?" So he he he's he then says, "So if you're easing money, won't that actually contribute just more maybe to AI stock prices and more of an AI bubble, which seems to actually create job losses?" So he he created this awesome narrative where he's like, "Mr. chairman, isn't it possible that Fed policy to ease money is simply going to feed more money into AI firms, which will then expand AI throughout the larger economy and then result in job losses. So, actually, isn't easy money creating unemployment, which I thought was just a like chef's kiss sort of question. And then Powell just went back to the whole, oh, I just don't believe that easy money contributes to the AI economy. That was it. >> It the most absurd answer to say to say that it's not interest rate sensitive like of course it is and in fact even even in Powell's response he he contradicted himself because when he was talking about like people who are investing in this they consider it like this like sort of speculation they're thinking about the money that they can earn in the long run and he actually referenced net present value which you know to calculate net present value you need an interest rate you need a discount rate to be able to do that and so of course if you push down uh the discount rate then that's going to increase the net present value of those future cash flows So, I mean, it's just completely absurd and like he couldn't even be consistent in his own response. So, yeah, I I I wasn't having a heart attack like Brendan Brown would. I was just like laughing while he was saying that stuff. [laughter] So, yeah, I don't think Powell came out of that meeting looking especially brilliant. Um, and I think that's probably just that comes back to your narrative, uh, Jonathan, which is that when the economy is going well, no one questions the Fed. the Fed can just smoothly sail through all of these meetings and everybody thinks, "Wow, the Fed's brilliant." But when once things start to look a little uncomfortable, people start to get a little concerned about employment, the Fed just doesn't seem to have any answers. Um, so I mean, politically though, where where does Powell go from here? like what's what's the Fed's big move uh politically in terms of just making sure that they continue to to come out smelling sweet as the employment situation worsens? >> Well, I think you know Powell's probably happy that no one's talking about the Fed renovation anymore. So that's a step in the right direction. [laughter] Um, but I mean it's it's again I think the idea that oh well you know again everything's good now December we're going to we're going to you we're going to stay stay easy everything's going great like it's going to be interesting to see um you know I don't think that the administration particularly likes that. Again if if you want to know how the how the the administration thinks about monetary policy look at what Stephen Min's saying. Um you know it's as as difficult as that might be at times. Um, and so they want more. Um, and so if if Pal is really committed, if if Pal's going to try to take this position come, you know, two months from now. Um, and you try to to not further ease, I mean, that's that's what the administration is going to want. They they you pump, baby pump. And, uh, so this is this was a perhaps a slight decrease from the political tension of last meeting, but that that entertension is not going away anytime soon. >> Jonathan, what do you think? leave us with some wise words as we conclude the episode. >> Oh, wise words. Uh, yeah, the Fed is the Fed is losing credibility. Uh, it's fun to watch. Like I I get a lot of entertainment value out of watching these press conferences. You know, I'm just sort of lucky that it's a part of my job to do that sort of thing. Um, and I'm so glad that you agree with me that Mike McKe is like the [laughter] the greatest journalist in the room. Actually, Mark Thoron, whose office is right next to mine, he he has said the same thing. uh that you know Mike McKe is he often has like the best questions and he does a really good job of you know like sneaking in these these sorts of like you're you're saying this line but if you think about in this way then it's actually going against what what you're it's going against your rhetoric. So so he's great uh in terms of like like what's going to happen in the future. I'm I I'm anticipating some big you know political battles some big headlines regarding uh who Trump nominates to be the next Fed chair. what Powell tries to do. Is he going to try to stay on the board? All those sorts of things. So, I I guess I don't have any wisdom. I'm just, you know, looking forward to, you know, eating my popcorn and watching. All right. Well, with that, we'll go ahead and wrap up this all fed episode of Power and Market podcast. Uh, thank you everyone out there for uh tuning in. Uh, by the way, just uh we've got some events coming up, right? We have well we we just concluded our supporter summit. I know in February I will be in Oklahoma City. We'll have a Misa circle going on there talking about entrepreneurship. So keep an eye out for more on that in February. Don't we have an EP? We have a event coming up in Michigan soon. >> Yeah, this this weekend. This weekend. >> Yeah. In Grand Rapids, Michigan for students. It's going to be great. Going to be out why the economy is failing generation Z. I have a feeling the Federal Reserve will be brought up a time or two at that one. So, we'll also have some video content hitting our media channels um you know in the aftermath of that. And after February, one event always recommend uh the our two research conferences that will be in March of next year in beautiful Auburn, Alabama, Libertarian Scholars Conference and the Asham Economics Research Conference. If you've ever been interested in uh presenting an academic paper either on libertarian theory or on uh economics and why the [clears throat] Fed is uh not our friend u you know consider submitting uh a proposal there always a great time or come watch see the cutting edge research in astro economics. >> All right well I think that'll be it for this week. We will be back uh next time with more. So we'll see you then. [music]