Fed Policy & Independence: No rate move and heavy focus on perceived Fed independence amid political pressure, with policy uncertainty seen as a growing market driver.
Precious Metals: Extended discussion on gold and silver as safe-haven assets, with flows driven by broad fiat weakness and expectations of elevated volatility.
Dollar Devaluation: Potential Trump-era strategy to weaken the dollar to boost exports was explored, along with implications for inflation, yields, and the cost of U.S. government debt.
Housing Affordability: The team highlighted policy choices that subsidize demand and restrict supply, Trump’s comments on keeping home prices high, and the generational tensions around affordability.
Market Volatility: Expectation of increased stock market volatility, possible corrections, and bandwagon effects across equities, gold, silver, and even crypto.
Macro Risks: Signs of strain include weak consumer confidence, commercial real estate pressures, markdowns in bad loans, and example hits like Microsoft and a BlackRock segment.
Data Dependence Limits: The Fed’s lagging data challenge was emphasized, complicating timely policy decisions and increasing regime uncertainty risk.
Transcript
Welcome back to the Power and Market podcast, our current events podcast. We've got a lot to talk about. We are joined as usual by Connor O'Keeffe and with special guest Dr. Jonathan Newman. Ryan McMon is out on assignment today. Uh we got a lot to talk about at FOMC press conference. Always a good time before we dive into the meat of the discussion. Uh, a few housekeeping items. A reminder that our first event of the year is coming up on February 21st in Oklahoma City, Oklahoma. The title, Entrepreneurship Beyond Politics. We've got a great great lineup including Dr. Keith Smith of the Surgery Center of Oklahoma, Kate Long of Custodia Bank, big wig in the crypto space, our own Ryan McMilland, and Timothy Terrell will all be there as well. So, if you want a break away from a politically dominated conversation and on to what really matters, uh we have a great event there. Also, shortly thereafter, uh if you're in the California area and you want to vent about the state of your government, and I'm sure any of our listeners there would like that chance, we're going to be in San Diego on April 25th for the topic, the state of the state. Um, so we're gonna have a lot of great speakers there to uh talk about the variety of ways that Sacramento and politicians up and down the uh the state over there are ripping off its uh its clientele. Um, so a great opportunity to get out there on the West Coast and of course with silver being in the news, we're going to have Jonathan break down the intricacies of that market here in a bit. Uh, the Misa Silver rounds are available at the bookstore. We've got Mises, we've got Rothbard, and we've got the great Rockwell. >> There you go. Right there. And Connor showing off the good >> out of focus. There's a Mis. >> Yeah, >> with the nice shield on the back. >> So, if you would like to have your own beautiful Mises silver round and ride the wave that's going on right now. Um, of course, follow Mark Thornton's work on minor issues for a lot of that as well. But, uh, we do have them in stock at the world famous Misa's bookstore and, uh, and you can also buy hoodies there. So, I think that's all the cells out of the door. Uh, Jonathan, we're going to start with you. Uh, again, always enjoy a good presence by by Jerome Pal. Um, lot of interesting headlines out there, but you know, beyond that though, what are your biggest takeaways from Fed chairman's uh addressing the public? >> Yeah, I I watched the uh FOMC press conference. Uh, a lot of it was just, you know, part for the course. A lot of what they do when they're making these announcements is they they they just tow the line. They just say the the same things over and over, which is uh we're always uh trying our best to follow the dual mandate and we're weighing both sides of the risk. You know, we're trying not to let price inflation get out of control and we're trying to make sure that we're supporting labor markets and all that sort of stuff. Of course, they also make u uh they make a lot of mention about we're going to see what happens with the incoming data. They're they're so data dependent and they're they never want to, you know, give too much of a signal about what policy will be in the future. At least no guarantees about it. And so a lot of his answers were they just sort of par for the course as I mentioned. >> We're par for the course this time with it being there being no no rate move which I should have started the show with no rate move there. So, so even even more uh status quo than it was our usual theatric. >> There there wasn't much of a news splash about that because I think markets anticipated that they they didn't anticipate another rate cut this time around. Um and but one thing that was uh sort of interesting about this press conference was uh all of the questions at the beginning, it's like you know four or five questions at the beginning were had something to do with pressure from the White House, stuff about independence, stuff about the um subpoena that was issued against Powell for his answers in congressional testimony. Uh and of course, you know, Powell, he just he just deflected. He he just didn't answer those questions. um you know, you know, good for him for not getting embroiled in all of the the gossip and all and you know, being goated into answering those questions in the way that the reporters probably wanted him to. Uh but he he basically just had no comment on those sorts of things. So, a lot of the the the first part of the of the time when the reporters were asking questions there, he was basically just saying, "I have no comment on that. I I have no answer for you on that right now." All of these sorts of things. So, didn't get much uh didn't get much of a emotional response from him. Didn't get much information at all from him on those sorts of questions. But a lot of that is in the news right now. The independence of the Federal Reserve is in the news. Pressures from the White House is is in the news. A lot of people asking good questions about uh whether the Federal Reserve should be more accountable to the executive branch and to the legislature. Um you know, technically they're accountable to Congress, but Congress doesn't really do much along those lines. they just sit Powell down and ask him a few questions. Some some of the questions some of the questions that he gets from uh the people on committees are are just, you know, they're bogus. They reveal that the the people in Congress have no clue what the Fed is or what the Fed does. Um and so to to the extent that that sort of thing represents accountability to Congress, it's just a sham. It's just it's just a it's theater. to show. So there's not much there either. Uh but of course the way that the executive branch exercises some some control over the Federal Reserve is that the president appoints uh governors Fed uh also the president appoints uh the Fed chairman uh which is coming up soon this year. Um and so we'll probably see some fireworks there in a few months. >> Actually, I think I saw sorry to interrupt. I saw Trump is going to announce a new Fed chair next week. He said that he would make that announcement. So, we'll see what happens. >> Here we go. I have a feeling would not be another term for Mr. Pal. Jerome too late pal. Trump took the trick social earlier this morning on Thursday as we were recording. U but to to your point though it I did think it was interesting. One of the questions was what advice do you have for your successor? Mhm. >> And one of it was, you know, you basically, you know, make sure you keep your strong relationship with Congress. And he he of course, you know, he he phrased it as, oh well, you know, we it's it's this is an active thing like, you know, you need to respect that. But really, it seems to be all about the relationship building that I think Pal perhaps even more than some of the previous Fed chairs has been very good at at maintaining good personal relationships with Congress, which I think probably explains a lot of the the response to uh the investigations and and all sort of stuff. make make sure that you have friends in Congress. Was kind of the takeaway uh from that. Uh Connor, uh what what is your big uh big notes from uh the FOMC meeting? >> Not really any big notes that are any different than Jonathan? It did uh strike me that it was clear the journalists there wanted to talk about the political topics around all this and he shut that down and then they were kind of like pouting and asking more economic questions which he got into. But it just all felt like the same old thing which I think is purposeful. And you know the Fed is always kind of doing that. Uh you were mentioning Fed speak like they really strike this very similar tone just about every time which is that like they're they're always watching the data. We're perpetually a few months away from the economy just completely stabilizing. They always talk like that. And it was just the same thing. And of course added uh the the fact that they left rates unchanged added to that. I thought it was sort of interesting. um two little moments just kind of from an optics standpoint which uh as at least you know though is kind of how I'm looking at this uh in in the big picture is at one point um he did kind of try to spin I think there were was it two or three descents um this time around he kind of tried to it it was two um >> he still kind of tried to spin it like they were all unified and he's like yeah they technically dissented but um there was still like a a lot of consensus here which I just kind of thought um was sort Interesting. And then another point came later when um it was probably the most political question he answered was about um what was coming down the road for the Fed. And he he did say outright that he expects and believes that the Fed will remain independent and kind of uh threw some cold water on the story that the press is definitely trying to june up and um get everybody freaking out about which is interesting. And I I don't know exactly how this is going to play out obviously, but um there is a part of me and part of it is based on an answer that Trump gave um to some question. Oh no, it was at the um the WF at the Davos speech. He was talking about how he's kind of joking, expecting to name some Fed chairman and then they're going to come in and essentially just turn completely against him in his wishes that like once they get the job they'll turn around and basically just be like Jerome Pal. And so it could be interesting if um I I don't know what the dynamic is going to be like. I to me it kind of feels like there's a a lot of similarities with the Trump Fed situation um in everything we were talking about with Venezuela a few weeks ago where you essentially have this like attempt at regime change, but it's all coming from Trump trying to put pressure on from a distance. You have all these internal things happening at the Fed where like institutionally they do not want to appear like they're taking orders from the president. And so there's going to be this heavy institutional pressure there to, you know, make them at least appear like uh they're they're not doing that. Um and you know, but Trump's not going to like that. So it's it's just going to be very interesting to see how that plays out. But it like the the party line of no like the Fed will remain independent and I expect it to remain independent is an interesting thing that that stood out to me. Of course, the two dissenters, one is our good friend Stephen Moren, who was the who's the most Trumpy member of of the board uh assigned this year, who's up for re-election next year. So, we'll see how that one goes. The other one is Chris Waller, who is the the the highest performing current FOMC member on Poly Market uh to to replace Powell. So, I have a feeling those two are are perhaps not not too disconnected right there. >> I I haven't looked at it recently. Is there anybody ahead of Waller? Uh so according to you know the current line um Rick Ryder who uh and and Kevin Worsh >> are the two names that are writers the Black Rockck one right? >> Yes. Yes I believe so. I still got you wouldn't have surprised me at all like I could see them trying to pull the Scott Bessant dual Treasury Fed chair move um which be very interested to see how that performs in the Senate. But it wouldn't surprise me at all if that ends up being uh the the the big bold move that Trump attempts there. But uh every will be pin on pins and needles waiting to see who wins that version of the apprentice. >> Marco Rubio for Fed chair. >> He needs another job. >> Okay. Yeah. Exactly. >> Well, I mean Walsh in particular is would be interesting because like I mean I think he's kind of viewed as as a fairly hawkish guy. I mean, he's he's like for for all this bluster over uh you know, want the Fed to do more and then if you get Kevin Morian, there'd be wouldn't be that surprising given the track record at this point, but it'd be a be interesting move see the least. Um so, so Jonathan um you uh and in in pre-production you highlighted some some headlines. Um and I and I think that this really kind of goes to the core of the message that that both of you mentioned is that the Fed's trying to assure things. Pal's trying to assure things that look, you know, we were concerned about unemployment. Unemployment is strengthening. We were concerned about inflation. You know, those concerns are going away. Um all of that was tariff related, right? Tariff was the the reason for the inflation pressures earlier. Now that's all kind of baked in at this point. Um things things are going well. Um should should we be believing the Fed's position here? Is is the economy fine and dandy? Is there any reason out there? Are there any measures out there that should give us pause to think that maybe the rosy picture that Powell had outlined uh this week is is perhaps not really what is going on right now? >> Well, certainly there's there's a lot of volatility in financial markets and I know Powell he never likes to mention financial markets and even when he gets questions about it, he'll say, "Well, we don't look at asset prices. We don't, in fact, he explicitly said something about uh he takes no meaning out of the the price of gold because that came up in the in the last press conference. Of course, since then, gold rose even further and you know, it's it's risen and it's tanked. It's risen and it's tanked. Same with silver. Uh so, uh another headline that I saw recently is that uh one of uh one of Black Rockck's segments that that they invest in, they had to have a a 19% markdown. um it was just over a few months. Uh and it was bad business loans. So there there are certainly some you know signs in the economy that uh it's that aren't so rosy. So that there's a lot of u commercial real estate that's going under prices are going down. Um I I saw headlines uh about consumer confidence, different measures of consumer confidence typically from survey data is that like at 14-year lows or or was it um is it 14 year lows or the lowest it's been since 2014? Something something along those lines. Um and so so cons consumers are weak. They've been paying these higher prices. Uh yes. So from Jay Powell's perspective, if he's just looking at the dual mandate and trying to target 2% price inflation, uh that might be okay for him, but in the meantime, we're still paying all of these higher prices. So the price level itself, you know, keeps rising. Um and so consumers are squeezed, businesses aren't doing so well, and it it looks like in financial markets that uh things are very rocky. Like Microsoft took a huge hit recently. Uh so some some typically you know safe plays uh aren't looking so safe. Uh and a lot of people are running to gold and silver. Um some of that might be some catchup of uh weakening dollar inflation expectations not just weakening dollar but you know weak weakening fiat currencies across the world. Uh one of our uh scholars Daniel Lay >> is that how you say it la. He he wrote a good article about how um it's it's it's not just the dollar falling, but it's all fiat currencies or all of the major fiat currencies are are not doing so well. And that's why people are fleeing all of them, not just switching, you know, from the euro or from the yen over to the dollar and back and forth. Uh but they're fleeing towards commodities like gold and silver. >> How about you, Connor? Um you know, what are you buying what what the Fed is selling on on that? What what are some of the indications that you have that uh what are you following? >> I mean, I never really buy what the Fed say. Like my my perspective is that I kind of treat them like a defense attorney. Like if going out and saying my client is innocent, like yeah, like that might be true, but they're going to say that anyway. And unless the uh the economy is like really falling apart, the Fed's going to try to put on this picture like we're in control. We're watching everything. It's all very boring. because like the worst case scenario is that markets are fine and then the Fed chair goes out there says something and everything collapses or goes crazy. So that's what they're trying to avoid. So I don't typically put too much stock in uh what they're saying um specifically >> on that point uh and related to what we started off discussing the Fed wants to be as boring as possible. Right. So that that press conference was pretty boring. Uh especially from Powell's perspective where he just wasn't answering their questions even though the journalists and reporters were trying to get him to answer questions about the polit politization of the Fed. Um declining appearance of of independence of the Fed. Uh the Fed really wants to be they don't want to be in the news. They don't they don't want um a big show. They want people to not even know who they are. So, so that that goes along exactly with what we were saying earlier. >> Well, I thought it was interesting that you so much of the focus of the questions once we got past kind of the trying to go pal was kind of discussing the trade-off right now between, you know, this is the way the Fed has been, you know, justifying its its positions for quite some time, right? It's like, oh, well, you know, the the labor markets are soft in, you know, inflation concerns are out there. He's he's you know kind of asked kind of particular like you know do do you kind of see these things in balance and kind ho and hum over over that necessarily but he did have an interesting comment um about how well you know GDP data shows you know good solid growth over this past year jobs data is you know they're still kind of dealing with some of the fallout from the shutdown and and not getting all the surveys and yada yada yada all the problems that have gone some of the the ways they measure uh labor performance right now but that you know if if you have labor and GDP showing different things that usually jobs numbers matter more in the long run than GDP that GDP acknowledging the difficulty of actually you know figuring out a good measure there. Um and it seems to me that you know this this idea that okay the job market is doing great. I mean, he even acknowledged some of the the anecdotal stuff in terms of um uh you college graduate job placement numbers right now are not particularly good and things like that that it it seems like that that that really is is the big takeaway is that you know they're they clearly didn't want to do anything but you know the the pressures on the labor side you know still are not quite as solid as as Pal's trying to make it out to be right now. >> Yeah. Yeah. Absolutely. So one one thing that he uh he explicitly mentioned GDP and how it's it's that data is slow to come out uh which means that it's hard for them to act on incoming GDP data uh because a lot of times like there's a lag. So like if if you just think about the the way that the Fed rece because they're always talking about how data dependent they are the data that they receive since it has to go through the government bureaucracies and other um other things for it to be collected. First first the the thing has to happen. So there's a layoff for example or there's some change in a level of expenditures somewhere and then that data has to be collected and then the the data has to be you know refined put together calculated you have to make especially for GDP you have to use estimation techniques um and then it's published and then the Fed can act on it but by that time like there's a totally new economic picture like market conditions have have changed up and down and sideways since then and so there's there's this terrible lag effect. So they talk about being data dependent but they literally can't be like well I mean they can but the data that they have is always going to be a few months or even you know years behind uh depending on the type of data that they're looking at referring to. >> And what throws a wrench to that was recently was the government shutdown and we may have another one here uh starting tomorrow. So >> we're on the watch. Yeah. >> Yeah. Uh but going back to something you were saying earlier that I really think is going to become a pretty huge point at least politically going forward is that uh distinction between or or that that precision about what inflation coming down actually means because that is a common I think way that certainly politicians but also sometimes kind of the Fed like to sort of spin it that they'll talk about inflation coming down and I think a lot of people understand that as prices coming back down when that's not what they mean. And they mean price increases are slowing down. And like it's so cartoonish right now. Trump is basically trying to get everybody to think that we are living in a deflationary period. The prices are coming back down. That's one of his lines. He's really really pushing that. Um which is just obviously not the case. But it it feels kind of similar when Pal is talking about, you know, inflation cooling down. It's like not as cartoonish and bombastic a version of that, but it's a similar thing. And I think that a lot of the there has been, I guess, some recent polling coming out about Trump losing some support, especially from parts of the coalition that were very important for him winning in 2024. And also some parts of, you know, his uh base that have been around for a long time. And I think a a big dynamic behind that is the fact that he's trying to present inflation and the affordability crisis as a fake issue that he solved almost immediately when he came in. the Democrats and the media are spinning it up as this big thing when it's a, you know, complete hoax. And that's just obviously not the case for most people. And they they take that as meaning, okay, well then prices should be back at like 2019 levels. And that's nobody thinks that that's actually going to happen here. The government very much does not want that to happen and we'll go to great lengths to to prevent that. Um, but I think this is going to be uh that specific issue there and the misunderstanding a lot of people have, I think is going to be a major factor in current events in uh in the United States for for the next few months. >> Well, and to that point, Connor, you know, one of the the go-to measures right now, one of the biggest talking points when it comes to the affordability question as a whole is housing prices. And u you you mentioned there was a recent Trump quote that you originally thought had to be fake just because of how what it was. Share that one. I guess it was at the cabinet meeting earlier today and I don't remember exactly what it is verbatim but he was just going on and on about how he, you know, just definitively saying we are not going to let housing prices come down at all. We're going to keep housing prices high. And he is of course framing the whole thing as like don't worry homeowners, we're not going to start gutting this major asset of yours. But that just goes completely against the whole like every I mean it was months ago that there was this whole effort from the administration. Um and you know of course all of it was political, it was branding um all about how we're going to fix the housing affordability crisis. We're going to help young Americans afford a home. And then he just starts going on this rant today which is saying the exact opposite thing. And yeah, when I first saw it, it was like written out by, you know, one of those like ex accounts where they never site their sources. They just sort of say breaking and then something. It was like from that and I was like I don't that can't be real. He wouldn't just say it that like abruptly and out of nowhere. But apparently it was. >> I I was talking about that with Tim Terrell today uh who's who's actually here at the institute. Uh he's he's on sabbatical and and working on some research projects. But we were we were talking about that the housing issue and how the the government is basically just doing all of the wrong things. Literally everything that the government does to try to address housing problems and housing affordability is to subsidize demand. So at the federal level especially, they're subsidizing demand. And then especially at the state and local level, what happens is you have things that are restriction of supply. And so of course you got restriction of supply and subsidized demand. Then you're just going to get higher uh prices, you know. So m maybe Trump finally uh you know figured out the truth of what the government does. doesn't. So that's why he was saying, "Don't worry, we're not going to do anything to to cause house prices to fall." >> Well, this goes to one of the big problems that that we face, right? Is like the generational tension right now with with the way the economy is is I mean, if you are president, right, like you you you don't want I mean, you know, nothing drives particularly voters and and voters, you know, with generational factors that go into that. Last thing you want is for people to see their their their net worth they take pride in go down. like that is exactly one of the problems that we face at this point. Um and and so you know it's like kind of peak boomer right there on you know that being one of your go-to talk talking points but kind of just shows some of the many problems that Trump has with the coalition he built in 24. >> Yeah. But I think um and Trump is a little bit unique in this. I don't think he cares about the fact that like you can't have one without the other. I think he's just kind of charged forward with confidence. Another one um which relates to another topic that I'm very I haven't been following it too much and I'm interested to hear both of your takes. But just to make my point real quick is um dollar devaluation. He he is there was like a clip and he didn't say it outright but I guess he was in a diner in Iowa I think and people were asking about the value of the dollar and he was kind of hinting at this broader thing which a lot of people are speculating about and there's been some papers written that the Trump administration wants to devalue the dollar especially because of uh trade and all that stuff and so you have Trump kind of pushing that and at the same time framing prices is coming down and basically saying he's defeating inflation and it's like you can't have those two. Well, I guess there's like technically you can kind of have that, but you would need like you'd have to be in a very different economy than we're in right now for uh prices to react differently based on uh to to not react to dollar devaluation through, you know, just just going up. So, I think it's it's the same thing with housing. He was talking specifically about protecting the value of houses or houses and so he was going to focus on that. But yeah, if he goes and gives a speech about the economy tomorrow, he could just go off about how he's gonna make housing cheap for young Americans. And I I think he sees no issue with that. >> Do you think Do you think Oh, sorry. I was just going to ask, do you think uh do you think voters are like catching on to that dynamic where like Trump will say one thing one day and then he'll say something else the next day? Or or do you think people are like do you think especially like Trump supporters, the diehard Trump supporters, do you think they're they're starting to like change their view of this guy? Because like he he does that all the time. He'll say one thing and then like the next day he'll say the opposite. >> What do you think? >> Well, I think there's definitely sort of a long-term uh trust you you know trust the plan, you know, sort of component to I think a variety of aspects of the administration. The problem is at the end of the day, again, we saw this, you know, play out in 24. I mean, nothing swings political trends quite like inflation, you know, quite like, you know, the cliche of kitchen table issues. And I think that's the problem is, you know, you know, you can point to, you know, a few areas, right? Like if you talk to a Trump supporter about the economy, you they're going to point to gas, right? Gas prices are down there. They'll they might mention eggs and how egg prices are down. Like there's there's a few little baskets that were, you know, big headlines. you know, that was kind of being used at certain points as measures of, you know, general prices and things like that. But if if they are in a small business that has had to deal with tariffs, they're not particularly happy if if if they are dealing with seeing, you know, when you know when they are struggling with I mean, Pal even mentioned how a lot of the survey data that they're getting right now from retailers and things like that. Um, you know, the kind of the shrinkflation dynamic of, you know, consumers downgrading the quality of their products. you know, they're still consuming, but they're having to downgrade things like that. You know, those things do chip away and it doesn't matter if you change like your your dieh hard, you know, you know, following to the end of the earth sort of person. Um, but again, when you have a broader coalition, it does matter. And it's also, you know, obviously there's there's major issues. guy. I think one of the most fascinating dynamics for for 26 when it comes to the Fed is going to be, you know, the the revival of institutionalist members of Congress and the Senate when it comes to, you know, their ability to control, you know, who ends up dictating the future of the Fed, um that that are going to want to project this this facade of independence and institutional stability and things like that. um you know very much follow the power line when clearly you know the big push right now from the administration is going to be you know you're going to do exactly what the president wants. >> Yeah. I for one am not in favor of Fed independence which is like it's like the most controversial position you can have on the Fed these days. So because everybody's talking about oh no the Fed's independence is is at risk and there's too much you know pressure from the executive. Uh but I I'm thinking it's like okay fine- if if people lose that illusion if they discard this myth that the Fed and the Treasury and the executive branch and Congress are all these like separate things. Uh then they'll they'll actually have a uh they'll be better able to identify who's to blame. And if they're better able to identify who's to blame for price inflation, like the stuff that I buy at the grocery store is too expensive and now I know who to blame. It's not because right now when they look at what the Fed says and what uh the president says, they're like sort of pointing fingers at each other saying like it's it's these guys, it's those guys. They're the ones causing all the all the problems. But if if people start to realize that it's really the government, which includes the the Federal Reserve uh that's to blame, then we might actually see uh more more anti-inflationism as a part of the American electorate ideology. uh which means we get something like what happened under Eisenhower. Uh Joe Sern had a great presentation on this at a at a conference last year. Uh how it if people uh understand that the Fed is not independent because it's not if people understand that then we actually have a chance of voting in an anti-inflation president, anti-inflation uh politicians in the legislature. So So which would be good because then we would get less price inflation. But as it stands now that it's it's all this theater and it's difficult for people to figure out who's to blame for their inflation because you see all sorts of things like people talking about greedflation, people talking about tariffs causing inflation, minimum wage causing inflation, it's government spending or it's money printing. And so ha having like removing that illusion would I think would bring us a long way forward in that regard. >> That's a a good point that I hadn't really thought about because I I agree with you. This is something we've been talking about on the show a lot that like this illusion needs to be broken. Um, but I've sort of looked at it as the issue is that the Fed has it's not that the Fed has been non-political, it's that it's been nonpartisan. And for most people, that's that's enough. And really, like, if we really were going to wake everybody up, it would be helping them understand that a nonpartisan government entity is still acting in its own interest and the interest of people that are well connected to it. But even if we don't get there and it gets politicized in that it becomes partisan and suddenly the Republicans are in there and they're superinflationist and then the Democrats because they have to always be against the Republicans um become anti-inflationist. Like it would be really productive if we brought that issue back to partisan politics. And yeah, that that is something that's really stuck out to me about reading early American history is it was a really political issue and you had like the different parties had different stances on money and like you know you'd have inflationist like candidates and um yeah the guy behind you um and it was yeah right there in the middle of that whole world and and so even if we don't get everybody woken up to the fact that like you know there the swamp is acting in its own interest and not your interest it would still be I think good if like yeah like people are actually going and talking about this stuff in in debates and town halls and it was it was an issue that people were fighting over that would be a big step in the right direction. That's the problem is that the entirety of Washington is built to avoid any accountability at all. Right? You you always have someone to blame. There's there's enough you know checks and balances. I mean go conversations about the filibuster. This goes to conversations about Supreme Court. This goes to conversation about the entire way the you know that though the modern state is structured is that it prevents any one piece from being changed by an election to to radically transform any sort of policy of significance. It it keeps, you know, voters and and citizens to the extent that they do care um and they tend to care when it comes down to to economic issues that they can, you know, directly identify on a day-to-day basis to to to be able to just, you know, easily rallied, you know, for you know, one side of the other in in this entire theatrical paradigm rather than dealing with any of the core stuff. And like that's exactly, you know, you if you want to have like I mean there's a lot of like I think one of the most fascinating components going on right now and and could play out if Trump gets his chosen guy at the Fed and and seeing the the you know economic policy for the next couple years is that there's clearly a an explicit desired goal from Treasury and from the economic team of the Trump administration to devalue the dollar, right? the Mara Laga Accords and and all these sort of you know strategic you know uh memos and things out there about you know the way that they want to reset the same way you know conversation about resetting foreign policy resetting etc but that they they want to reset the dollar they they want to deliberately devalue the dollar relative of other currencies like I mean this this this is this is not something happening by happen stance it's not simply a rush from you know a certain political pressure here or there this is a deliberate thoughtout strategy and It's it's it's a radical departure from where the Fed has been. That's the downside. The other side though is that in order to have a a Ron Paul, right? You know, to have some sort of radical change in the Fed policy the other way, you have to break through these guard rails that are very firmly attached to this institution. um or ideally, you know, talk about abolishing some of these institutions and the like. And it's but but it's very interesting that you there is very real, you know, concrete discussions about the dollar and and its use in ways that would have been unheard of, you know, several decades ago. >> Yeah. As as Connor mentioned, the the main reason why the administration is okay with dollar devaluation uh is a part of their protectionist views. It helps to encourage exports. Um, so I guess I guess they think that by by doing that sort of thing that will encourage American manufacturing and we'll have more jobs in the US because we'll be exporting more because foreigners can buy more dollars with a given union of their own uh currency. Uh but I mean there's all sorts of you know side effects and unintended consequences that come with these sorts of policies. So like then you have to worry about interest rates. Uh one one interesting thing that um I just started thinking about today um well I mean I've thought about it before but I was thinking about it today in the context of current events is a policy uncertainty and what that does to the yield curve what that does to uh yields on on treasuries because if so if people have this view that Trump is going to put in a a Fed chair who is friendly to the administration is going to allow dollar devaluation will will print more be more expansionary uh then also sorts of crazy things can happen to the cost of government debt. So, we could see interest rates uh rise considerably and then like what does the Fed have to do to to reign that back in? And so, like you have all sorts of uh weird things happening and in that environment of policy uncertainty, you get you get decreases in in production. You could you could have a a recession. Uh there's some great work by Bob Higs on this with regime uncertainty. if uh listeners are interested in doing some reading after finishing the podcast. Yeah, it's just I I don't envy the I mean I'm in a very different uh I have a very different mind view uh worldview than the people in the Fed, but as an institution, they got to be stressing out right now about the next couple months because it just doesn't I don't see a path through this that doesn't really harm their their image and their image is so important to them. even like I I was kind of scoffing at Did you see that part of the press conference where I guess it was the question when um pal was asked like what advice he had for uh who's going to follow him and he was like making some claims about like this is the most competent team of people you will ever work with >> you never meet more more more people dedicated to the common good than the the people that make up the Fed. >> Yeah. It's just like they are excellent and they're you know all they're using all this data and they are making the right decisions. this was the right decision because these are just the most impressive people that you have working not even just you know on the the Fed I think he was mentioning like all the the people working for the Fed however how however many thousands of economists they have that's just apparently the the greatest people like I said a few weeks ago are economic priesthood that uh is just you know leading us to the promised land >> they they deserve a multi-billion dollar building darn it >> look how great these people are >> don't get me started on that >> actually I'm going to go ahead and go down that road. So, let's talk let's talk about the Fed's building a little bit. So, one of the uh the things that the Fed is saying about the their building renovations, by the way, this is uh extremely relevant because a part of the uh the story of the breakdown of the Fed's independence is the fact that the Justice Department issued this subpoena against Powell uh because for allegedly false testimony that he gave and the testimony was about the renovations at the Federal Reserve building in Washington DC. But one of the the story about this from from the Fed side, but also just you know boilerplate financial reporting uh or yeah just reporting on it is that the Fed is self- financed. The the Fed uh this is no cost to taxpayers because the Fed is going to pay for all of this sort of stuff and that I you know I'm I'm starting to have a receding hairline. I was causing me to like tear even more of my hair out when I was reading this sort of thing. like everything that the Fed does uh is it takes away from the private sector. So like there's nothing that the Fed can do that is that is self- financing. It's like it's literally it's printing money to purchase government debt and then it's income is the interest that it earns on that government debt. But that came from taxpayers like tax ultimately that comes from taxpayers. They have to they have to pay money to the treasury so that the treasury can pay down the debt. So its income comes from taxpayers but also to the extent uh that it's uh it's able to purchase that debt with money printing new newly created money that's also a taking from from all citizens not just taxpayers but anybody who's holding dollars uh it's a taking from them. So, it's just it's just all bogus. And it was uh and and it just it made me so angry to not only see that line, but also just see the luxurious sorts of things that they're doing with the with the Fed building renovations. Uh like stuff like the the elevator to the VIP dining suite, which was in the proposal. >> It was in it at least in one of the proposals. like they might have taken it away because of uh media attention, but now they're they're trying to like walk up it back. It's like, "Oh, it's the same elevator that's always been there." It's like, "Oh, that was never in the plan." And it's like, "No, like I saw the report. Uh it was in the plan uh to have like this special elevator for governors to go to their executive dining suite." Uh but also like stuff like all this glass work and they're going to have etched on the glass pictures associated with all the different reserve banks u and like these huge atriums and places for them to have events uh big offices uh it's just it's just egregious like when I see that and then I I think about the prices that I pay at the grocery store and the gas station it just it boils my bottom. It sounds like if if the DOJ is looking to uh to to uh shop around for jurisdictions to to try PAL, Alabama would be a good spot for it. Uh well, now that we have gotten through again a rather uh unremarkable uh FOMC thing, any any predictions for the rest of the year, Jonathan? Any any any guesses on on your report? I I know you're not a big fan of economic forecasting. >> Yeah, I I don't like >> What's your model showing you, Jonathan? Here, let me let me quickly, you know, type it all up. Uh, yeah, I I think we're going to see a lot more uh stock market volatility. Uh, we're going to see gold and silver do crazy things. Bitcoin is probably going to do some crazy things as well. Uh, simply because of the policy uncertainty that I was talking about before. And also, there's this like bandwagon effect that you see where as soon as people see that certain stock is doing well or doing poorly, everybody starts to enter and everybody starts to exit depending on which direction the price is going. So we'll see lots of volatility. We could I mean a lot of the uh of course the Fed is not going to say this and but but also some of the big banks, big financial institutions are not projecting a a recession or financial crisis this year but I mean it seem it's not out of the question, right? I mean it seems it seems maybe I shouldn't say the word likely, but it seems very possible uh that we see like a big stock market correction. Uh we could even though the with this most recent FOMC meeting the labor market stuff looked a little bit better compared to what it was doing at the end of last year. Uh like we could see further deterioration of labor markets. Uh we could see even more price inflation. We could see a recession. So I things don't look rosy from my point of view. So that that's what my model says. Well, I know any anytime that uh I have people talking to me about precious metals as much as I had the last two weeks, it's usually not a good sign for the economy. >> Yeah. Yeah, that's very true. >> My rule of thumb. >> Yeah. >> Um but had a lot of conversations about silver the last last two weeks. That's usually not the best side of the world. Connor, you you have any any any uh farreaching uh thoughts for predictions? >> Yeah, I I also hate making forecasts. I I would say like um I'm a little interested. I had this whole precious metal dynamic when what we were talking about earlier, what uh Laaya was writing about how um people are flooding to precious metals and not to other fiat currencies is interesting and I'd like to watch how that plays out. And you know, I I don't anticipate that this is the cliff and like we finally done it and we're done with fiat right now. Um that you know, I don't think there's going to be a huge collapse, you know, with this current wave we're seeing. It's it's an interesting question like does it snap all the way back or does it not quite um that's something I'll be watching and then of course what we were just talking about with like the political and optics imagery dynamic of the Fed going forward. I think it's a difficult situation um that they're heading into. They they know it. We've been talking about how it seems like they've tried to give themselves a a possible angle to play this off as like a um a non-permanent Trump moment where he comes in, he does a bunch of crazy stuff and then we get past it once he he goes away. But then uh Pal was kind of backtracking on that a little bit today saying that Fed independence is not going anywhere and you know with with Trump's worries about the Fed president coming in or his Fed chair coming in and just turning against what Trump wants once he's in there. I don't know that could be an interesting dynamic and you know does Trump go crazy or does he kind of slink back and uh stop caring as much there's a lot of things that especially I think it's May is when Pal's time is done. That's going to be a very interesting couple of weeks to watch uh how that plays out and then the implications going forward will also be interesting. He has what two meetings left. Think so. >> Well, my my guess my prediction >> Yeah. My my prediction is that they don't is is that he he he doesn't raise rates again and that it's gonna be two 10 votes or 10 two votes the rest of his time >> because the Fed is so independent and and immune from from politics. That that is my that is my bet is that there's there's going to be no giving. It's going to be your your two loyal Trump guys in the Fed voting and the rest will be will follow pal and that uh yeah I think the Senate Senate debates over the Fed next year going to be going to be fun. I'm going to get my pop. >> Speaking of politics though, I'm interested in your view on midterms. So everybody's saying that the GOP is going to get slaughtered. So So where are you on that? What do you think is going to happen? Uh, I I would expect the I think the most interesting one is the Senate at this point, but you know, it's it's I think it's it's it'll be interesting to see how boring the Democrat bench looks like in their candidates. I think they're going to get, you know, I saw a tweet last week about how like, you know, the Democrats are going to run like, you know, the most generic boring white guy who's going to govern like Mao. um you know after he wins some midterms and and so that's kind of what my so you know depends on the quality of the Democrat candidates in these races because the thing is is that you know for all of the you know highlighting you know some of the the structural weaknesses that that Trump has done to his his voting coalition the Democratic brand has not responded yeah on the other side right you don't have a Democrat leader that is rallying you know support behind them you know whether it's in Congress or Senate or or you one of these governor's chairs. I mean, you know, it's it's the reputation on both sides that have gone down at this point, right? >> Um, and so I would never you I I think it's it's easy to overstate how bad the Republicans are are looking in the midterm electorate, but I would not equate that to strength on the other side. I don't think we're going to have like some independent candidates or anything like that, but like that's that's that I think is the the variable that's easy to be missed in that calcul. So, we'll see. >> Yeah. It's kind of like the the fiat currency thing. They're not they're not the voters are not necessarily going to Democrats, >> but people aren't fleeing to the gold party when it comes to politics right now, unfortunately for for our libertarian friends out there. >> Okay. Well, I think that is as good a place to end it as any. Uh thank you guys for tuning in to this episode of Power and Market. Again, remember to uh check out our events page if you want to see us in person throughout the year. Also, make sure to uh like and subscribe on your podcast channel of choice. We're going to make a bigger push for that this year. Uh for Connor, for Jonathan, this has been th we'll see you next week. Proceed ever more bold.
The Fed Does Nothing
Summary
Transcript
Welcome back to the Power and Market podcast, our current events podcast. We've got a lot to talk about. We are joined as usual by Connor O'Keeffe and with special guest Dr. Jonathan Newman. Ryan McMon is out on assignment today. Uh we got a lot to talk about at FOMC press conference. Always a good time before we dive into the meat of the discussion. Uh, a few housekeeping items. A reminder that our first event of the year is coming up on February 21st in Oklahoma City, Oklahoma. The title, Entrepreneurship Beyond Politics. We've got a great great lineup including Dr. Keith Smith of the Surgery Center of Oklahoma, Kate Long of Custodia Bank, big wig in the crypto space, our own Ryan McMilland, and Timothy Terrell will all be there as well. So, if you want a break away from a politically dominated conversation and on to what really matters, uh we have a great event there. Also, shortly thereafter, uh if you're in the California area and you want to vent about the state of your government, and I'm sure any of our listeners there would like that chance, we're going to be in San Diego on April 25th for the topic, the state of the state. Um, so we're gonna have a lot of great speakers there to uh talk about the variety of ways that Sacramento and politicians up and down the uh the state over there are ripping off its uh its clientele. Um, so a great opportunity to get out there on the West Coast and of course with silver being in the news, we're going to have Jonathan break down the intricacies of that market here in a bit. Uh, the Misa Silver rounds are available at the bookstore. We've got Mises, we've got Rothbard, and we've got the great Rockwell. >> There you go. Right there. And Connor showing off the good >> out of focus. There's a Mis. >> Yeah, >> with the nice shield on the back. >> So, if you would like to have your own beautiful Mises silver round and ride the wave that's going on right now. Um, of course, follow Mark Thornton's work on minor issues for a lot of that as well. But, uh, we do have them in stock at the world famous Misa's bookstore and, uh, and you can also buy hoodies there. So, I think that's all the cells out of the door. Uh, Jonathan, we're going to start with you. Uh, again, always enjoy a good presence by by Jerome Pal. Um, lot of interesting headlines out there, but you know, beyond that though, what are your biggest takeaways from Fed chairman's uh addressing the public? >> Yeah, I I watched the uh FOMC press conference. Uh, a lot of it was just, you know, part for the course. A lot of what they do when they're making these announcements is they they they just tow the line. They just say the the same things over and over, which is uh we're always uh trying our best to follow the dual mandate and we're weighing both sides of the risk. You know, we're trying not to let price inflation get out of control and we're trying to make sure that we're supporting labor markets and all that sort of stuff. Of course, they also make u uh they make a lot of mention about we're going to see what happens with the incoming data. They're they're so data dependent and they're they never want to, you know, give too much of a signal about what policy will be in the future. At least no guarantees about it. And so a lot of his answers were they just sort of par for the course as I mentioned. >> We're par for the course this time with it being there being no no rate move which I should have started the show with no rate move there. So, so even even more uh status quo than it was our usual theatric. >> There there wasn't much of a news splash about that because I think markets anticipated that they they didn't anticipate another rate cut this time around. Um and but one thing that was uh sort of interesting about this press conference was uh all of the questions at the beginning, it's like you know four or five questions at the beginning were had something to do with pressure from the White House, stuff about independence, stuff about the um subpoena that was issued against Powell for his answers in congressional testimony. Uh and of course, you know, Powell, he just he just deflected. He he just didn't answer those questions. um you know, you know, good for him for not getting embroiled in all of the the gossip and all and you know, being goated into answering those questions in the way that the reporters probably wanted him to. Uh but he he basically just had no comment on those sorts of things. So, a lot of the the the first part of the of the time when the reporters were asking questions there, he was basically just saying, "I have no comment on that. I I have no answer for you on that right now." All of these sorts of things. So, didn't get much uh didn't get much of a emotional response from him. Didn't get much information at all from him on those sorts of questions. But a lot of that is in the news right now. The independence of the Federal Reserve is in the news. Pressures from the White House is is in the news. A lot of people asking good questions about uh whether the Federal Reserve should be more accountable to the executive branch and to the legislature. Um you know, technically they're accountable to Congress, but Congress doesn't really do much along those lines. they just sit Powell down and ask him a few questions. Some some of the questions some of the questions that he gets from uh the people on committees are are just, you know, they're bogus. They reveal that the the people in Congress have no clue what the Fed is or what the Fed does. Um and so to to the extent that that sort of thing represents accountability to Congress, it's just a sham. It's just it's just a it's theater. to show. So there's not much there either. Uh but of course the way that the executive branch exercises some some control over the Federal Reserve is that the president appoints uh governors Fed uh also the president appoints uh the Fed chairman uh which is coming up soon this year. Um and so we'll probably see some fireworks there in a few months. >> Actually, I think I saw sorry to interrupt. I saw Trump is going to announce a new Fed chair next week. He said that he would make that announcement. So, we'll see what happens. >> Here we go. I have a feeling would not be another term for Mr. Pal. Jerome too late pal. Trump took the trick social earlier this morning on Thursday as we were recording. U but to to your point though it I did think it was interesting. One of the questions was what advice do you have for your successor? Mhm. >> And one of it was, you know, you basically, you know, make sure you keep your strong relationship with Congress. And he he of course, you know, he he phrased it as, oh well, you know, we it's it's this is an active thing like, you know, you need to respect that. But really, it seems to be all about the relationship building that I think Pal perhaps even more than some of the previous Fed chairs has been very good at at maintaining good personal relationships with Congress, which I think probably explains a lot of the the response to uh the investigations and and all sort of stuff. make make sure that you have friends in Congress. Was kind of the takeaway uh from that. Uh Connor, uh what what is your big uh big notes from uh the FOMC meeting? >> Not really any big notes that are any different than Jonathan? It did uh strike me that it was clear the journalists there wanted to talk about the political topics around all this and he shut that down and then they were kind of like pouting and asking more economic questions which he got into. But it just all felt like the same old thing which I think is purposeful. And you know the Fed is always kind of doing that. Uh you were mentioning Fed speak like they really strike this very similar tone just about every time which is that like they're they're always watching the data. We're perpetually a few months away from the economy just completely stabilizing. They always talk like that. And it was just the same thing. And of course added uh the the fact that they left rates unchanged added to that. I thought it was sort of interesting. um two little moments just kind of from an optics standpoint which uh as at least you know though is kind of how I'm looking at this uh in in the big picture is at one point um he did kind of try to spin I think there were was it two or three descents um this time around he kind of tried to it it was two um >> he still kind of tried to spin it like they were all unified and he's like yeah they technically dissented but um there was still like a a lot of consensus here which I just kind of thought um was sort Interesting. And then another point came later when um it was probably the most political question he answered was about um what was coming down the road for the Fed. And he he did say outright that he expects and believes that the Fed will remain independent and kind of uh threw some cold water on the story that the press is definitely trying to june up and um get everybody freaking out about which is interesting. And I I don't know exactly how this is going to play out obviously, but um there is a part of me and part of it is based on an answer that Trump gave um to some question. Oh no, it was at the um the WF at the Davos speech. He was talking about how he's kind of joking, expecting to name some Fed chairman and then they're going to come in and essentially just turn completely against him in his wishes that like once they get the job they'll turn around and basically just be like Jerome Pal. And so it could be interesting if um I I don't know what the dynamic is going to be like. I to me it kind of feels like there's a a lot of similarities with the Trump Fed situation um in everything we were talking about with Venezuela a few weeks ago where you essentially have this like attempt at regime change, but it's all coming from Trump trying to put pressure on from a distance. You have all these internal things happening at the Fed where like institutionally they do not want to appear like they're taking orders from the president. And so there's going to be this heavy institutional pressure there to, you know, make them at least appear like uh they're they're not doing that. Um and you know, but Trump's not going to like that. So it's it's just going to be very interesting to see how that plays out. But it like the the party line of no like the Fed will remain independent and I expect it to remain independent is an interesting thing that that stood out to me. Of course, the two dissenters, one is our good friend Stephen Moren, who was the who's the most Trumpy member of of the board uh assigned this year, who's up for re-election next year. So, we'll see how that one goes. The other one is Chris Waller, who is the the the highest performing current FOMC member on Poly Market uh to to replace Powell. So, I have a feeling those two are are perhaps not not too disconnected right there. >> I I haven't looked at it recently. Is there anybody ahead of Waller? Uh so according to you know the current line um Rick Ryder who uh and and Kevin Worsh >> are the two names that are writers the Black Rockck one right? >> Yes. Yes I believe so. I still got you wouldn't have surprised me at all like I could see them trying to pull the Scott Bessant dual Treasury Fed chair move um which be very interested to see how that performs in the Senate. But it wouldn't surprise me at all if that ends up being uh the the the big bold move that Trump attempts there. But uh every will be pin on pins and needles waiting to see who wins that version of the apprentice. >> Marco Rubio for Fed chair. >> He needs another job. >> Okay. Yeah. Exactly. >> Well, I mean Walsh in particular is would be interesting because like I mean I think he's kind of viewed as as a fairly hawkish guy. I mean, he's he's like for for all this bluster over uh you know, want the Fed to do more and then if you get Kevin Morian, there'd be wouldn't be that surprising given the track record at this point, but it'd be a be interesting move see the least. Um so, so Jonathan um you uh and in in pre-production you highlighted some some headlines. Um and I and I think that this really kind of goes to the core of the message that that both of you mentioned is that the Fed's trying to assure things. Pal's trying to assure things that look, you know, we were concerned about unemployment. Unemployment is strengthening. We were concerned about inflation. You know, those concerns are going away. Um all of that was tariff related, right? Tariff was the the reason for the inflation pressures earlier. Now that's all kind of baked in at this point. Um things things are going well. Um should should we be believing the Fed's position here? Is is the economy fine and dandy? Is there any reason out there? Are there any measures out there that should give us pause to think that maybe the rosy picture that Powell had outlined uh this week is is perhaps not really what is going on right now? >> Well, certainly there's there's a lot of volatility in financial markets and I know Powell he never likes to mention financial markets and even when he gets questions about it, he'll say, "Well, we don't look at asset prices. We don't, in fact, he explicitly said something about uh he takes no meaning out of the the price of gold because that came up in the in the last press conference. Of course, since then, gold rose even further and you know, it's it's risen and it's tanked. It's risen and it's tanked. Same with silver. Uh so, uh another headline that I saw recently is that uh one of uh one of Black Rockck's segments that that they invest in, they had to have a a 19% markdown. um it was just over a few months. Uh and it was bad business loans. So there there are certainly some you know signs in the economy that uh it's that aren't so rosy. So that there's a lot of u commercial real estate that's going under prices are going down. Um I I saw headlines uh about consumer confidence, different measures of consumer confidence typically from survey data is that like at 14-year lows or or was it um is it 14 year lows or the lowest it's been since 2014? Something something along those lines. Um and so so cons consumers are weak. They've been paying these higher prices. Uh yes. So from Jay Powell's perspective, if he's just looking at the dual mandate and trying to target 2% price inflation, uh that might be okay for him, but in the meantime, we're still paying all of these higher prices. So the price level itself, you know, keeps rising. Um and so consumers are squeezed, businesses aren't doing so well, and it it looks like in financial markets that uh things are very rocky. Like Microsoft took a huge hit recently. Uh so some some typically you know safe plays uh aren't looking so safe. Uh and a lot of people are running to gold and silver. Um some of that might be some catchup of uh weakening dollar inflation expectations not just weakening dollar but you know weak weakening fiat currencies across the world. Uh one of our uh scholars Daniel Lay >> is that how you say it la. He he wrote a good article about how um it's it's it's not just the dollar falling, but it's all fiat currencies or all of the major fiat currencies are are not doing so well. And that's why people are fleeing all of them, not just switching, you know, from the euro or from the yen over to the dollar and back and forth. Uh but they're fleeing towards commodities like gold and silver. >> How about you, Connor? Um you know, what are you buying what what the Fed is selling on on that? What what are some of the indications that you have that uh what are you following? >> I mean, I never really buy what the Fed say. Like my my perspective is that I kind of treat them like a defense attorney. Like if going out and saying my client is innocent, like yeah, like that might be true, but they're going to say that anyway. And unless the uh the economy is like really falling apart, the Fed's going to try to put on this picture like we're in control. We're watching everything. It's all very boring. because like the worst case scenario is that markets are fine and then the Fed chair goes out there says something and everything collapses or goes crazy. So that's what they're trying to avoid. So I don't typically put too much stock in uh what they're saying um specifically >> on that point uh and related to what we started off discussing the Fed wants to be as boring as possible. Right. So that that press conference was pretty boring. Uh especially from Powell's perspective where he just wasn't answering their questions even though the journalists and reporters were trying to get him to answer questions about the polit politization of the Fed. Um declining appearance of of independence of the Fed. Uh the Fed really wants to be they don't want to be in the news. They don't they don't want um a big show. They want people to not even know who they are. So, so that that goes along exactly with what we were saying earlier. >> Well, I thought it was interesting that you so much of the focus of the questions once we got past kind of the trying to go pal was kind of discussing the trade-off right now between, you know, this is the way the Fed has been, you know, justifying its its positions for quite some time, right? It's like, oh, well, you know, the the labor markets are soft in, you know, inflation concerns are out there. He's he's you know kind of asked kind of particular like you know do do you kind of see these things in balance and kind ho and hum over over that necessarily but he did have an interesting comment um about how well you know GDP data shows you know good solid growth over this past year jobs data is you know they're still kind of dealing with some of the fallout from the shutdown and and not getting all the surveys and yada yada yada all the problems that have gone some of the the ways they measure uh labor performance right now but that you know if if you have labor and GDP showing different things that usually jobs numbers matter more in the long run than GDP that GDP acknowledging the difficulty of actually you know figuring out a good measure there. Um and it seems to me that you know this this idea that okay the job market is doing great. I mean, he even acknowledged some of the the anecdotal stuff in terms of um uh you college graduate job placement numbers right now are not particularly good and things like that that it it seems like that that that really is is the big takeaway is that you know they're they clearly didn't want to do anything but you know the the pressures on the labor side you know still are not quite as solid as as Pal's trying to make it out to be right now. >> Yeah. Yeah. Absolutely. So one one thing that he uh he explicitly mentioned GDP and how it's it's that data is slow to come out uh which means that it's hard for them to act on incoming GDP data uh because a lot of times like there's a lag. So like if if you just think about the the way that the Fed rece because they're always talking about how data dependent they are the data that they receive since it has to go through the government bureaucracies and other um other things for it to be collected. First first the the thing has to happen. So there's a layoff for example or there's some change in a level of expenditures somewhere and then that data has to be collected and then the the data has to be you know refined put together calculated you have to make especially for GDP you have to use estimation techniques um and then it's published and then the Fed can act on it but by that time like there's a totally new economic picture like market conditions have have changed up and down and sideways since then and so there's there's this terrible lag effect. So they talk about being data dependent but they literally can't be like well I mean they can but the data that they have is always going to be a few months or even you know years behind uh depending on the type of data that they're looking at referring to. >> And what throws a wrench to that was recently was the government shutdown and we may have another one here uh starting tomorrow. So >> we're on the watch. Yeah. >> Yeah. Uh but going back to something you were saying earlier that I really think is going to become a pretty huge point at least politically going forward is that uh distinction between or or that that precision about what inflation coming down actually means because that is a common I think way that certainly politicians but also sometimes kind of the Fed like to sort of spin it that they'll talk about inflation coming down and I think a lot of people understand that as prices coming back down when that's not what they mean. And they mean price increases are slowing down. And like it's so cartoonish right now. Trump is basically trying to get everybody to think that we are living in a deflationary period. The prices are coming back down. That's one of his lines. He's really really pushing that. Um which is just obviously not the case. But it it feels kind of similar when Pal is talking about, you know, inflation cooling down. It's like not as cartoonish and bombastic a version of that, but it's a similar thing. And I think that a lot of the there has been, I guess, some recent polling coming out about Trump losing some support, especially from parts of the coalition that were very important for him winning in 2024. And also some parts of, you know, his uh base that have been around for a long time. And I think a a big dynamic behind that is the fact that he's trying to present inflation and the affordability crisis as a fake issue that he solved almost immediately when he came in. the Democrats and the media are spinning it up as this big thing when it's a, you know, complete hoax. And that's just obviously not the case for most people. And they they take that as meaning, okay, well then prices should be back at like 2019 levels. And that's nobody thinks that that's actually going to happen here. The government very much does not want that to happen and we'll go to great lengths to to prevent that. Um, but I think this is going to be uh that specific issue there and the misunderstanding a lot of people have, I think is going to be a major factor in current events in uh in the United States for for the next few months. >> Well, and to that point, Connor, you know, one of the the go-to measures right now, one of the biggest talking points when it comes to the affordability question as a whole is housing prices. And u you you mentioned there was a recent Trump quote that you originally thought had to be fake just because of how what it was. Share that one. I guess it was at the cabinet meeting earlier today and I don't remember exactly what it is verbatim but he was just going on and on about how he, you know, just definitively saying we are not going to let housing prices come down at all. We're going to keep housing prices high. And he is of course framing the whole thing as like don't worry homeowners, we're not going to start gutting this major asset of yours. But that just goes completely against the whole like every I mean it was months ago that there was this whole effort from the administration. Um and you know of course all of it was political, it was branding um all about how we're going to fix the housing affordability crisis. We're going to help young Americans afford a home. And then he just starts going on this rant today which is saying the exact opposite thing. And yeah, when I first saw it, it was like written out by, you know, one of those like ex accounts where they never site their sources. They just sort of say breaking and then something. It was like from that and I was like I don't that can't be real. He wouldn't just say it that like abruptly and out of nowhere. But apparently it was. >> I I was talking about that with Tim Terrell today uh who's who's actually here at the institute. Uh he's he's on sabbatical and and working on some research projects. But we were we were talking about that the housing issue and how the the government is basically just doing all of the wrong things. Literally everything that the government does to try to address housing problems and housing affordability is to subsidize demand. So at the federal level especially, they're subsidizing demand. And then especially at the state and local level, what happens is you have things that are restriction of supply. And so of course you got restriction of supply and subsidized demand. Then you're just going to get higher uh prices, you know. So m maybe Trump finally uh you know figured out the truth of what the government does. doesn't. So that's why he was saying, "Don't worry, we're not going to do anything to to cause house prices to fall." >> Well, this goes to one of the big problems that that we face, right? Is like the generational tension right now with with the way the economy is is I mean, if you are president, right, like you you you don't want I mean, you know, nothing drives particularly voters and and voters, you know, with generational factors that go into that. Last thing you want is for people to see their their their net worth they take pride in go down. like that is exactly one of the problems that we face at this point. Um and and so you know it's like kind of peak boomer right there on you know that being one of your go-to talk talking points but kind of just shows some of the many problems that Trump has with the coalition he built in 24. >> Yeah. But I think um and Trump is a little bit unique in this. I don't think he cares about the fact that like you can't have one without the other. I think he's just kind of charged forward with confidence. Another one um which relates to another topic that I'm very I haven't been following it too much and I'm interested to hear both of your takes. But just to make my point real quick is um dollar devaluation. He he is there was like a clip and he didn't say it outright but I guess he was in a diner in Iowa I think and people were asking about the value of the dollar and he was kind of hinting at this broader thing which a lot of people are speculating about and there's been some papers written that the Trump administration wants to devalue the dollar especially because of uh trade and all that stuff and so you have Trump kind of pushing that and at the same time framing prices is coming down and basically saying he's defeating inflation and it's like you can't have those two. Well, I guess there's like technically you can kind of have that, but you would need like you'd have to be in a very different economy than we're in right now for uh prices to react differently based on uh to to not react to dollar devaluation through, you know, just just going up. So, I think it's it's the same thing with housing. He was talking specifically about protecting the value of houses or houses and so he was going to focus on that. But yeah, if he goes and gives a speech about the economy tomorrow, he could just go off about how he's gonna make housing cheap for young Americans. And I I think he sees no issue with that. >> Do you think Do you think Oh, sorry. I was just going to ask, do you think uh do you think voters are like catching on to that dynamic where like Trump will say one thing one day and then he'll say something else the next day? Or or do you think people are like do you think especially like Trump supporters, the diehard Trump supporters, do you think they're they're starting to like change their view of this guy? Because like he he does that all the time. He'll say one thing and then like the next day he'll say the opposite. >> What do you think? >> Well, I think there's definitely sort of a long-term uh trust you you know trust the plan, you know, sort of component to I think a variety of aspects of the administration. The problem is at the end of the day, again, we saw this, you know, play out in 24. I mean, nothing swings political trends quite like inflation, you know, quite like, you know, the cliche of kitchen table issues. And I think that's the problem is, you know, you know, you can point to, you know, a few areas, right? Like if you talk to a Trump supporter about the economy, you they're going to point to gas, right? Gas prices are down there. They'll they might mention eggs and how egg prices are down. Like there's there's a few little baskets that were, you know, big headlines. you know, that was kind of being used at certain points as measures of, you know, general prices and things like that. But if if they are in a small business that has had to deal with tariffs, they're not particularly happy if if if they are dealing with seeing, you know, when you know when they are struggling with I mean, Pal even mentioned how a lot of the survey data that they're getting right now from retailers and things like that. Um, you know, the kind of the shrinkflation dynamic of, you know, consumers downgrading the quality of their products. you know, they're still consuming, but they're having to downgrade things like that. You know, those things do chip away and it doesn't matter if you change like your your dieh hard, you know, you know, following to the end of the earth sort of person. Um, but again, when you have a broader coalition, it does matter. And it's also, you know, obviously there's there's major issues. guy. I think one of the most fascinating dynamics for for 26 when it comes to the Fed is going to be, you know, the the revival of institutionalist members of Congress and the Senate when it comes to, you know, their ability to control, you know, who ends up dictating the future of the Fed, um that that are going to want to project this this facade of independence and institutional stability and things like that. um you know very much follow the power line when clearly you know the big push right now from the administration is going to be you know you're going to do exactly what the president wants. >> Yeah. I for one am not in favor of Fed independence which is like it's like the most controversial position you can have on the Fed these days. So because everybody's talking about oh no the Fed's independence is is at risk and there's too much you know pressure from the executive. Uh but I I'm thinking it's like okay fine- if if people lose that illusion if they discard this myth that the Fed and the Treasury and the executive branch and Congress are all these like separate things. Uh then they'll they'll actually have a uh they'll be better able to identify who's to blame. And if they're better able to identify who's to blame for price inflation, like the stuff that I buy at the grocery store is too expensive and now I know who to blame. It's not because right now when they look at what the Fed says and what uh the president says, they're like sort of pointing fingers at each other saying like it's it's these guys, it's those guys. They're the ones causing all the all the problems. But if if people start to realize that it's really the government, which includes the the Federal Reserve uh that's to blame, then we might actually see uh more more anti-inflationism as a part of the American electorate ideology. uh which means we get something like what happened under Eisenhower. Uh Joe Sern had a great presentation on this at a at a conference last year. Uh how it if people uh understand that the Fed is not independent because it's not if people understand that then we actually have a chance of voting in an anti-inflation president, anti-inflation uh politicians in the legislature. So So which would be good because then we would get less price inflation. But as it stands now that it's it's all this theater and it's difficult for people to figure out who's to blame for their inflation because you see all sorts of things like people talking about greedflation, people talking about tariffs causing inflation, minimum wage causing inflation, it's government spending or it's money printing. And so ha having like removing that illusion would I think would bring us a long way forward in that regard. >> That's a a good point that I hadn't really thought about because I I agree with you. This is something we've been talking about on the show a lot that like this illusion needs to be broken. Um, but I've sort of looked at it as the issue is that the Fed has it's not that the Fed has been non-political, it's that it's been nonpartisan. And for most people, that's that's enough. And really, like, if we really were going to wake everybody up, it would be helping them understand that a nonpartisan government entity is still acting in its own interest and the interest of people that are well connected to it. But even if we don't get there and it gets politicized in that it becomes partisan and suddenly the Republicans are in there and they're superinflationist and then the Democrats because they have to always be against the Republicans um become anti-inflationist. Like it would be really productive if we brought that issue back to partisan politics. And yeah, that that is something that's really stuck out to me about reading early American history is it was a really political issue and you had like the different parties had different stances on money and like you know you'd have inflationist like candidates and um yeah the guy behind you um and it was yeah right there in the middle of that whole world and and so even if we don't get everybody woken up to the fact that like you know there the swamp is acting in its own interest and not your interest it would still be I think good if like yeah like people are actually going and talking about this stuff in in debates and town halls and it was it was an issue that people were fighting over that would be a big step in the right direction. That's the problem is that the entirety of Washington is built to avoid any accountability at all. Right? You you always have someone to blame. There's there's enough you know checks and balances. I mean go conversations about the filibuster. This goes to conversations about Supreme Court. This goes to conversation about the entire way the you know that though the modern state is structured is that it prevents any one piece from being changed by an election to to radically transform any sort of policy of significance. It it keeps, you know, voters and and citizens to the extent that they do care um and they tend to care when it comes down to to economic issues that they can, you know, directly identify on a day-to-day basis to to to be able to just, you know, easily rallied, you know, for you know, one side of the other in in this entire theatrical paradigm rather than dealing with any of the core stuff. And like that's exactly, you know, you if you want to have like I mean there's a lot of like I think one of the most fascinating components going on right now and and could play out if Trump gets his chosen guy at the Fed and and seeing the the you know economic policy for the next couple years is that there's clearly a an explicit desired goal from Treasury and from the economic team of the Trump administration to devalue the dollar, right? the Mara Laga Accords and and all these sort of you know strategic you know uh memos and things out there about you know the way that they want to reset the same way you know conversation about resetting foreign policy resetting etc but that they they want to reset the dollar they they want to deliberately devalue the dollar relative of other currencies like I mean this this this is this is not something happening by happen stance it's not simply a rush from you know a certain political pressure here or there this is a deliberate thoughtout strategy and It's it's it's a radical departure from where the Fed has been. That's the downside. The other side though is that in order to have a a Ron Paul, right? You know, to have some sort of radical change in the Fed policy the other way, you have to break through these guard rails that are very firmly attached to this institution. um or ideally, you know, talk about abolishing some of these institutions and the like. And it's but but it's very interesting that you there is very real, you know, concrete discussions about the dollar and and its use in ways that would have been unheard of, you know, several decades ago. >> Yeah. As as Connor mentioned, the the main reason why the administration is okay with dollar devaluation uh is a part of their protectionist views. It helps to encourage exports. Um, so I guess I guess they think that by by doing that sort of thing that will encourage American manufacturing and we'll have more jobs in the US because we'll be exporting more because foreigners can buy more dollars with a given union of their own uh currency. Uh but I mean there's all sorts of you know side effects and unintended consequences that come with these sorts of policies. So like then you have to worry about interest rates. Uh one one interesting thing that um I just started thinking about today um well I mean I've thought about it before but I was thinking about it today in the context of current events is a policy uncertainty and what that does to the yield curve what that does to uh yields on on treasuries because if so if people have this view that Trump is going to put in a a Fed chair who is friendly to the administration is going to allow dollar devaluation will will print more be more expansionary uh then also sorts of crazy things can happen to the cost of government debt. So, we could see interest rates uh rise considerably and then like what does the Fed have to do to to reign that back in? And so, like you have all sorts of uh weird things happening and in that environment of policy uncertainty, you get you get decreases in in production. You could you could have a a recession. Uh there's some great work by Bob Higs on this with regime uncertainty. if uh listeners are interested in doing some reading after finishing the podcast. Yeah, it's just I I don't envy the I mean I'm in a very different uh I have a very different mind view uh worldview than the people in the Fed, but as an institution, they got to be stressing out right now about the next couple months because it just doesn't I don't see a path through this that doesn't really harm their their image and their image is so important to them. even like I I was kind of scoffing at Did you see that part of the press conference where I guess it was the question when um pal was asked like what advice he had for uh who's going to follow him and he was like making some claims about like this is the most competent team of people you will ever work with >> you never meet more more more people dedicated to the common good than the the people that make up the Fed. >> Yeah. It's just like they are excellent and they're you know all they're using all this data and they are making the right decisions. this was the right decision because these are just the most impressive people that you have working not even just you know on the the Fed I think he was mentioning like all the the people working for the Fed however how however many thousands of economists they have that's just apparently the the greatest people like I said a few weeks ago are economic priesthood that uh is just you know leading us to the promised land >> they they deserve a multi-billion dollar building darn it >> look how great these people are >> don't get me started on that >> actually I'm going to go ahead and go down that road. So, let's talk let's talk about the Fed's building a little bit. So, one of the uh the things that the Fed is saying about the their building renovations, by the way, this is uh extremely relevant because a part of the uh the story of the breakdown of the Fed's independence is the fact that the Justice Department issued this subpoena against Powell uh because for allegedly false testimony that he gave and the testimony was about the renovations at the Federal Reserve building in Washington DC. But one of the the story about this from from the Fed side, but also just you know boilerplate financial reporting uh or yeah just reporting on it is that the Fed is self- financed. The the Fed uh this is no cost to taxpayers because the Fed is going to pay for all of this sort of stuff and that I you know I'm I'm starting to have a receding hairline. I was causing me to like tear even more of my hair out when I was reading this sort of thing. like everything that the Fed does uh is it takes away from the private sector. So like there's nothing that the Fed can do that is that is self- financing. It's like it's literally it's printing money to purchase government debt and then it's income is the interest that it earns on that government debt. But that came from taxpayers like tax ultimately that comes from taxpayers. They have to they have to pay money to the treasury so that the treasury can pay down the debt. So its income comes from taxpayers but also to the extent uh that it's uh it's able to purchase that debt with money printing new newly created money that's also a taking from from all citizens not just taxpayers but anybody who's holding dollars uh it's a taking from them. So, it's just it's just all bogus. And it was uh and and it just it made me so angry to not only see that line, but also just see the luxurious sorts of things that they're doing with the with the Fed building renovations. Uh like stuff like the the elevator to the VIP dining suite, which was in the proposal. >> It was in it at least in one of the proposals. like they might have taken it away because of uh media attention, but now they're they're trying to like walk up it back. It's like, "Oh, it's the same elevator that's always been there." It's like, "Oh, that was never in the plan." And it's like, "No, like I saw the report. Uh it was in the plan uh to have like this special elevator for governors to go to their executive dining suite." Uh but also like stuff like all this glass work and they're going to have etched on the glass pictures associated with all the different reserve banks u and like these huge atriums and places for them to have events uh big offices uh it's just it's just egregious like when I see that and then I I think about the prices that I pay at the grocery store and the gas station it just it boils my bottom. It sounds like if if the DOJ is looking to uh to to uh shop around for jurisdictions to to try PAL, Alabama would be a good spot for it. Uh well, now that we have gotten through again a rather uh unremarkable uh FOMC thing, any any predictions for the rest of the year, Jonathan? Any any any guesses on on your report? I I know you're not a big fan of economic forecasting. >> Yeah, I I don't like >> What's your model showing you, Jonathan? Here, let me let me quickly, you know, type it all up. Uh, yeah, I I think we're going to see a lot more uh stock market volatility. Uh, we're going to see gold and silver do crazy things. Bitcoin is probably going to do some crazy things as well. Uh, simply because of the policy uncertainty that I was talking about before. And also, there's this like bandwagon effect that you see where as soon as people see that certain stock is doing well or doing poorly, everybody starts to enter and everybody starts to exit depending on which direction the price is going. So we'll see lots of volatility. We could I mean a lot of the uh of course the Fed is not going to say this and but but also some of the big banks, big financial institutions are not projecting a a recession or financial crisis this year but I mean it seem it's not out of the question, right? I mean it seems it seems maybe I shouldn't say the word likely, but it seems very possible uh that we see like a big stock market correction. Uh we could even though the with this most recent FOMC meeting the labor market stuff looked a little bit better compared to what it was doing at the end of last year. Uh like we could see further deterioration of labor markets. Uh we could see even more price inflation. We could see a recession. So I things don't look rosy from my point of view. So that that's what my model says. Well, I know any anytime that uh I have people talking to me about precious metals as much as I had the last two weeks, it's usually not a good sign for the economy. >> Yeah. Yeah, that's very true. >> My rule of thumb. >> Yeah. >> Um but had a lot of conversations about silver the last last two weeks. That's usually not the best side of the world. Connor, you you have any any any uh farreaching uh thoughts for predictions? >> Yeah, I I also hate making forecasts. I I would say like um I'm a little interested. I had this whole precious metal dynamic when what we were talking about earlier, what uh Laaya was writing about how um people are flooding to precious metals and not to other fiat currencies is interesting and I'd like to watch how that plays out. And you know, I I don't anticipate that this is the cliff and like we finally done it and we're done with fiat right now. Um that you know, I don't think there's going to be a huge collapse, you know, with this current wave we're seeing. It's it's an interesting question like does it snap all the way back or does it not quite um that's something I'll be watching and then of course what we were just talking about with like the political and optics imagery dynamic of the Fed going forward. I think it's a difficult situation um that they're heading into. They they know it. We've been talking about how it seems like they've tried to give themselves a a possible angle to play this off as like a um a non-permanent Trump moment where he comes in, he does a bunch of crazy stuff and then we get past it once he he goes away. But then uh Pal was kind of backtracking on that a little bit today saying that Fed independence is not going anywhere and you know with with Trump's worries about the Fed president coming in or his Fed chair coming in and just turning against what Trump wants once he's in there. I don't know that could be an interesting dynamic and you know does Trump go crazy or does he kind of slink back and uh stop caring as much there's a lot of things that especially I think it's May is when Pal's time is done. That's going to be a very interesting couple of weeks to watch uh how that plays out and then the implications going forward will also be interesting. He has what two meetings left. Think so. >> Well, my my guess my prediction >> Yeah. My my prediction is that they don't is is that he he he doesn't raise rates again and that it's gonna be two 10 votes or 10 two votes the rest of his time >> because the Fed is so independent and and immune from from politics. That that is my that is my bet is that there's there's going to be no giving. It's going to be your your two loyal Trump guys in the Fed voting and the rest will be will follow pal and that uh yeah I think the Senate Senate debates over the Fed next year going to be going to be fun. I'm going to get my pop. >> Speaking of politics though, I'm interested in your view on midterms. So everybody's saying that the GOP is going to get slaughtered. So So where are you on that? What do you think is going to happen? Uh, I I would expect the I think the most interesting one is the Senate at this point, but you know, it's it's I think it's it's it'll be interesting to see how boring the Democrat bench looks like in their candidates. I think they're going to get, you know, I saw a tweet last week about how like, you know, the Democrats are going to run like, you know, the most generic boring white guy who's going to govern like Mao. um you know after he wins some midterms and and so that's kind of what my so you know depends on the quality of the Democrat candidates in these races because the thing is is that you know for all of the you know highlighting you know some of the the structural weaknesses that that Trump has done to his his voting coalition the Democratic brand has not responded yeah on the other side right you don't have a Democrat leader that is rallying you know support behind them you know whether it's in Congress or Senate or or you one of these governor's chairs. I mean, you know, it's it's the reputation on both sides that have gone down at this point, right? >> Um, and so I would never you I I think it's it's easy to overstate how bad the Republicans are are looking in the midterm electorate, but I would not equate that to strength on the other side. I don't think we're going to have like some independent candidates or anything like that, but like that's that's that I think is the the variable that's easy to be missed in that calcul. So, we'll see. >> Yeah. It's kind of like the the fiat currency thing. They're not they're not the voters are not necessarily going to Democrats, >> but people aren't fleeing to the gold party when it comes to politics right now, unfortunately for for our libertarian friends out there. >> Okay. Well, I think that is as good a place to end it as any. Uh thank you guys for tuning in to this episode of Power and Market. Again, remember to uh check out our events page if you want to see us in person throughout the year. Also, make sure to uh like and subscribe on your podcast channel of choice. We're going to make a bigger push for that this year. Uh for Connor, for Jonathan, this has been th we'll see you next week. Proceed ever more bold.