Federal Reserve Policy: The Fed recently lowered its target policy interest rate by 25 basis points to 4.25%, continuing a trend of rate cuts despite ongoing inflation concerns.
Inflation and Employment: Despite inflation remaining above the Fed's 2% target, rate cuts are being justified by concerns over employment data, which is seen as unreliable and potentially overstated.
Political Influence: The discussion highlighted the increasing politicization of the Fed, with suggestions that recent rate cuts may be influenced by political pressures, particularly from the Trump administration.
Fed's Uncertainty: The podcast emphasized the Fed's uncertainty about future actions, with Powell admitting that the Fed is navigating a period of significant economic unpredictability.
Inflation Target Skepticism: There is skepticism about the Fed's inflation targeting, with predictions consistently showing a 2% inflation rate two years out, raising questions about the credibility of these forecasts.
Potential for Further Rate Cuts: Market expectations and political pressures suggest the possibility of further rate cuts, although the Fed warns against assuming any specific future actions.
Critique of Fed's Dual Mandate: The discussion included critiques of the Fed's dual mandate, suggesting a need for reform and questioning the effectiveness of current monetary policy frameworks.
Economic Outlook: The podcast concluded with predictions of continued small rate cuts unless a major economic downturn occurs, with inflation and employment data being key factors in future Fed decisions.
Transcript
[Music] Welcome back to the Power and Market podcast, the current event podcast at the Mises Institute. And with me today are two of our contributing editors, Connor O'Keefe and Tho Bishop. So I welcome everyone back to the show. Thank you for tuning in. Uh let's talk about the the big financial news this week, which was the Federal Reserve and their FOMC meeting. And they did meet, they came out. Powell had his usual Wednesday afternoon press conference for that. And to the surprise of very few, uh, the Fed lowered its target policy interest rate, uh, by 25 basis points or a quarter of a percent. So that brings it down now to uh 4.25. Just just to make sure I'm saying that right. So, uh, just to give you some context here, uh, the Fed had raised the rate after we got 40-year highs in inflation back in late 2022. This was back when the Fed was was saying repeatedly that inflation was transitory. That was no problem. the Fed had to raise the uh the target rate substantially in order to rein in some of the monetary inflation and hope that some of those uh those immense amounts of inflation would go away in 2022 and 2023 moderated somewhat. Of course, we didn't get any of the value back to our dollar, right? The no purchasing power returned. they were just able to slow down the inflation process a little bit by allowing uh the market to function by allowing more freedom in the market and allowing interest rates to rise which is what tends to happen when the Fed takes a break from slamming down interest rates using uh monetary inflation and its open market operations. So now, however, they decided to just hold steady throughout most of 2024, but then they got real political in late 2024, toward the end of the election, and they started a new cutting uh cycle. And many people suspect at the time, probably correctly, that there was no reason for the Fed to start cutting again in late 2024. uh inflation was still elevated above this is that his price inflation was still elevated above the Fed's 2% inflation target. So why cut then? Oh well it just happened to be a good time to stimulate employment in the economy right at the end of a national election. So they did that and then as soon as Trump comes in they decide oh we won't do anything more which was actually the right decision. They should have stopped just doing things uh and let the market take over that process. But they're back. They're back to cutting again. And uh we'll talk a little bit I think about why that is. Uh so will they keep cutting? We don't know. But everybody was expecting a cut at this time. There was I think maybe the the only surprise here was I think a lot of people were hoping for a 50 point basis cut uh basis point cut. They only got 25% which seems more like a Powell thing to do. Do do the uh quarter of a point uh thing. So that's where we are in terms of the Fed. Uh and I think then we can just we just need to ask ourself right why now? Why did why did the Fed decide that now's a good time to cut though? What do you think on that? >> Well, we can make this episode really nice and simple because if we're trying to understand the Fed's meeting this week, it's the Fed doesn't know. You you said you we don't know what the Fed's going to do in the future. The Fed has no idea what's going it's going to do in the future. The entire message that Pal gave was okay, we're starting to see increase uh concern on the employment front. Inflation is still above where we want. We have to do something. So, we're going to do a quarter point now, but you know what's going to happen? I don't know. Um and that's essentially everything is is built and and to be fair to be fair, right? You know, you know, they are there's there's an element an element of humility if you understand what they're saying. Of course, it's packaged in fed speak. So it's like you know so it's it's big on emphasis of okay we're all getting together we're all having these conversations we're all independent um you know we understand why like you know there's a whole element into the conversation about why jobs data is so unreliable and they they talked about like the underlying issues with the modeling not simply with survey responses but with different components that go into it but but at the core of this message is things are uncertain. We're dealing with pressure on both sides. We don't know how to balance those two concerns right now. We're doing something now. Who knows the impact it's going to have in the future? Who knows where it will be? Um, and so the Fed does not know. The Fed's lost control of of the ship at this point. And they are communicating that as clearly as they possibly can. Uh, Jackson Hole a couple weeks ago, right? There was conversations about changing some of their frameworks, some of their internal sort of things by which that they conduct monetary policy. So, this is a very big period of admitted uncertainty here. The one thing that I think is worth noting that is interesting is obviously all of this is under the shadow of Trump's very clear explicit desire to effectively politicize the Fed. Um this was the coming out party for Steven Mirren. Uh there there was a question I I enjoyed that that Pal got about like yo men's still in the the executive u you know still works for the executive office. That's never happened before. You know how was that welcome coming in? And like Pal was like oh no we you know we had cake and we we're all good to He's like, "No, I'm not talking anymore about that. I have a feeling Steven Moren is not his favorite person in the world." Um, but that dynamic, but but what's what's interesting about that though is, you know, there's been a lot of conversation about, okay, well, you know, you add Marin, you get rid of Cook, we change the number here, and all of a sudden you have a Fed majority board. It is worth noting that the quarter point move, right, the the the small sort of, you know, Goldilocks middle ground sort of dynamic was what 11 to1 vote, right? That Marin was the only dissenting vote wanting more. And so that includes everyone else on the Federal Reserve Board that comes from, you know, Trump's fingerprints was not on board with the more aggressive move. Moran was the the lone hold out there. Um, and so that is something that is worth working about. warrant. Yeah, since since we're we're you know it's it's it's criminal nom what's the the whole Kremlin Kremlin studies you know that's effectively what we're trying to do now and trying to understand how the Fed operates but that is worth noting that Moren singularly was the one voice for a more aggressive cut than what we got >> yeah Connor I mean some people describe this as uh Powell bending the knee to Trump that the order went out to lower rates uh do you think that's like an accurate I that that implies that Powell has some deep principles uh to which he adheres. I mean, I don't know. Is that a fair characterization or do you think it really was sort of a Powell finally giving in to Trump pressure sort of thing? >> Yeah, I think the Wall Street Journal editorial board said it's Trump's Fed now. Like it's basically it's over. The political takeover has occurred. And I that's not my read as well. I think to the extent that politics was a factor and it was notable in the press conference, it was a lot more political. the questions were a lot more about politics than I'm used to saying, but the extent to which uh that is a factor, it feels more like Pal trying to thread the needle, maybe given a little bit so that Trump kind of stops chirping about it without giving in too much so that uh the, you know, anti-Trump forces uh start making noise on the other side. I think having um Trump's effort to get Cook out fall apart, at least for now. It looks like it's going to the Supreme Court um is good for that, you know, kind of effort from Pal's perspective. Um and I thought it was interesting. The the most notable moment of the presser for me was that um Pal was asked he was asked a number of questions specifically about uh Myin, however you you say his name. And at one point he's just sort of I don't remember what the specific question was but it was about him essentially being like this asset of Trump and Pal did not really push back at it. he just accepted the idea that he is a political asset on the Fed board now. And his way to kind of talk it down was that he's outnumbered, that all the other economists there are, you know, purely looking at the data. And so this one kind of political figure um would have to be really convincing and persuade using data. But so like it it was a way to kind of shrug off that question right now. But like implied in that is that okay, but if Trump can get more people in there, he's already sort of accepting this whole idea that a political takeover has started it, you know, it isn't anywhere near the point where it needs to be if it's going to like actually really change the trajectory of the Fed, you know, based on uh Pal's arguments. But it was just interesting to me that he completely accepted that framing. And I think as we go forward if they're able to get Cook out of there, which is very much up in the air, but you know, Pal's term I think is over in May. So like changes are coming at the Fed and Trump is not going anywhere for a while. So there there's a lot of potential for this this whole conversation about the politicization of the Fed to only accelerate from here, even if they're trying to kind of uh thread the needle and be a little bit giving to both sides right now. Well, and of course, right, these these people who serve on the board of governors, they have these really long terms. So, uh Trump's going to have to come up with uh more uh reasons to fire people for cause if he's going to force some more people out within the next 3 years. And I don't know, Lisa Cook gave him an opportunity for that. I don't know if other members of the board uh are going to be so easy but yes it was actually not you mentioned it right there were a lot of political questions during the press conference and I thought uh they have peppered those in a little bit increasingly over the last 6 months or so just because Trump has been so public about it and that's the one thing I want to emphasize right is there is always pressure being applied to the Fed from various corners in Washington the difference with Trump is that he's just public about it. I mean, now we have all these stories about like LBJ flying out to his ranch and and getting the um I think it was uh William McZnney uh Martin out to his property out in Texas and basically threatening the guy physically and things like that. These tactics have always been there. It's just Trump like go goes and does it on Twitter. So then people in the media feel the need to ask these uh blatant political questions. And it was actually fun watching some of the uh the reporters, you could tell that some of them were supremely uncomfortable asking the political questions. One guy, he kept fidgeting toward the end of the press conference. He uh just kind of like he kept like rubbing his leg. You could tell he did not want to be asking that question, but I guess his boss has probably told him you got to cuz the question was really uncomfortable, too. It was something like under what conditions chairman Powell would you be willing to resign from the board sort of question which of course you already we already know how Powell answers that stuff. He just says you know either I cannot comment or under no conditions will I resign. Uh so that was a go nowhere uh question but yeah they included a fair amount of that probably more so than usual as you say in this. Uh, but there were some good qu there were some good economics questions. One of my favorites and the guy's like hardly an in Austrian or anything like that. I like Steve Leeman's questions a lot of the time. They're a little bit more hard-hitting and uh his question this time just had to do with right with inflation still going up um how are you justifying uh this cut? And I think that's a lot of the question is why now is with inflation still high, why how are you justifying this cut now? And Powell's pretty slick when it comes to that stuff. He said, "Oh, it's we got to balance our two mandates and that sort of thing." So, he gave a lot of very political sounding answers uh to that that question. But I I don't think uh that was to the satisfaction of of many people. Well, it just seems like they just don't care very much about price inflation right now. >> Well, there's the other element to it where, you know, again, he's talking about how they've recognized these long simmering issues with the employment data, right? And and I I think the question was asked, right? Basically, like, you know, if you'd have known now what the jobs market looked like, you know, last time around, would you have cut then? And and Pal didn't he said basically, you know, we we did what we did. But like if if the current justification is, you know, particularly baked around the revisions of the job data and if you knew that the job data was faulty and you knew that it was probably overstating things, then again it goes back to this point. Okay, well then why again we would argue we shouldn't have done that. But like if that is the motivating thing and you knew this was baked in the DNA, then why didn't you do it, you know, last month? Okay. So, so, so that that again that that goes to the point where again the Fed is is is, you know, is masks itself under this dynamic that we are serious people responding seriously to serious data. And the reality of what they're having to talk about is that the data is not serious. The the the incentives on the on the board are being made less serious, being made more political. Again, they'll say like, "Oh, well, we're standing against it." Whatever. I mean, again, historically, just not true. And so so you know and and they're now stuck in a situation that they themselves acknowledge that from their own narrative is novel is you know does not happen that that that much right and they have no firmer idea on exactly where things are going to go. Um so again this is this is pals fed um you know this is this is where we are and that the politicalization is only going to get more intense. the data is not going to significantly improve and they they they do not know you know there was a there was a question asked about Scott Bessant and some of his critiques of the Fed um which are at least he had he I don't think he's threatened to to punch Jay Pal like he did our good friend Bill Py so you know pal has that going for him but um um but but you know and and Pal like oh you know we're we're streamlining we're cutting you know we're already in this process and then there was convers would you consider more more extreme reforms and like oh we'll always consider And so like the Fed like you know and that itself I think is interesting right like the to me that's that itself is kind of an acknowledgement of Pal to the best that someone can be who is an institutional man right like you know I kind of vision personally like Pal being similar in temperament to John Roberts right the very political non-political sort of institutional driven sort of guy um and and but like but I think that that itself the fact that he was not more assertive in defending the current structure of the Fed Fed um and obviously he's not going to you know support radical change like that but like I I think it goes to the the the difficulty of defending how the Fed currently operates given again everything that's been else has been laid out. I think that is an interesting dynamic where the Fed is right now. >> Yeah. The uh the the question about Bessant right was what will you submit to an independent uh inquiry and really trying to nail him down on that. I'm surprised he didn't actually say that. Uh well, of course we uh submit to the people who uh approved our charter, Congress. Congress can govern us in any way they want, which is absolutely true. Um but so much of what's going on right now is the executive branch just coming in and just on the whims of the president trying to uh to do whatever whatever he wants. And that's a point that Alex Pollock has made a few times recently too, one of our senior fellows, right? that no, the Fed is just supposed to be independent of the executive branch, not of the government entirely. The Congress should absolutely govern the Fed, but that's just not what's going on right now. The political situation is very different. And and it's worth noting as well that um Pollock was not just simply making the case with with us, not making simply making the case in in print, but was actually on the Hill um you know for one of the it used to be the subcommittee for you know monetary policy. At one point it was a domestic monetary policy subcommittee because they didn't want Ron Paul when he was chair of it to also be in charge of international monetary policy. That's a whole fun topic in its own right. But but um but uh Alex Pollock was actually part of a panel on Fed reform. from the potentials, the need, etc. Uh we we've got his testimony up on the um power and market blog. Uh but but that's also interesting the fact that again it demonstrates a demand and interest from lawmakers which has been ground for a while. Like it is worth noting just the context that you know since 2008 there has been the occasional conversation about more serious Fed reform, right? Rules-based monetary policy. We're going to statutoily require the Taylor rule rather than the dual mandate. um you know on the left we get conversations about you know revisiting the 2% mandate uh inflation targeting upwards you know that there has been in the background um these pre-existing kind of conversations here but u very good to get I mean I think some of of of u Alex Pollock's recommendations was a focus on sound money mandate rather than kind of dual dual mandate there um getting out of the mortgage industry entirely which is a major part of the the the Fed's portfolio is worth noting that part of the announcement of the policy was quantitative tightening if you will, and selling off and allowing rolling off of securities and some of those assets that they do have. Um, but I I do recommend if you're interested in this and uh Alex Pollock had you it's not, you know, radical Rothbart and in the Fed tomorrow and, you know, gold standard will reign. Um, you know, it is a lot more wonkish. It's a lot more kind of middle ground sort of reforms there, but it is worth noting that that Pollock was on was was on the hill um talking about some of these issues um to to those folks. >> Yeah, it was good stuff. And I I think like right now sort of really lends credence to this idea of like moving away from the dual mandate because it's sort of at least it was taught to me in grad school that the two sides of it sort of move opposite to each other. But right now that's not happening and inflation is staying higher but you know jobs getting a little bit worse. That's what Pal was sort of that that was the reason he gave was that that change in data. They're trying to he you know it was classic Fed speed. I think it was like something like moving more towards neutral or something like that. But really what it signals is that um they don't view inflation as as big of a problem as you know other things. And that kind of gets to the the broader topic of like the whole 2% target and everything. And I've always sort of to me as long as I've been really interested in this stuff, it's always struck me as more of a uh born more out of an aversion to deflation. And it seems like they, you know, they talk about stable prices. is when it comes to their rhetoric, stable prices is what they're always talking about. How, you know, that that's that's their goal. They're trying to bring about stable prices. But in action, it seems like it it seems like they were a little bit stressed more stressed back. I think it was under yelling when they were below the 2% target. That seemed like a little bit more of a priority than, you know, the fact that it's above 2% seemed during the press conference. Uh that was only yesterday. Yesterday to me, >> oh 100%. when when it was below 2% the target 2%. Because the economy was crappy, frankly, right, for that whole period after the Great Recession, you had boy 7 8 years or so where the economy was just simply underperforming and where and and a lot of that asset price growth even during that period that people were crowing about that was limited to a number of big coastal cities. If you were a homeowner in middle America, you you weren't really benefiting from that very much. And there wasn't any real increase in real incomes throughout much of middle America. You didn't really see a return to old pre uh great recession income numbers until about 2017 through 2019 or so. And that was due to another round of massive monetary inflation where there were some gains in productivity and such. Uh also some some improvements in international trade where people finally did start to uh see some real appreciation in their their overall net worth and income. Uh but for most of that time under Yelen there was no real improvement and so you had these really low price inflation levels because there were a lot of disinflationary uh effects from just the mediocre economy. And so they were freaking out all the time about how inflation's too low. We need more price stability. By which they meant more inflation because they felt there was too much downside movement in inflation. And they were always talking about how now maybe we even need to get up the overall average rate above 2%. We need to hold inflation above 2% for a time. They never ever would say oh well after say what happened in 2022. Oh the inflation rate was way above 2% for a while. So now we need to hold it below 2% for a while. In fact, Powell at one press conference was straight up asked that, "Would you consider having it bel um having the um trying to move things below 2% in order to get that average back down to 2%?" He just straight up said, "No, that's never something we would consider doing." So, the average that that they're talking about really what that means is 2% inflation is the floor. It's not a place they want to like kind of bounce around. they want to bounce around above 2%. And so you're if you see then with them talking about price stability in most contexts that actually means bringing price inflation up. It's just now it's become a political problem for them price inflation. So now they're talking about getting it down. But usually that's just not what worries them. It's as you say Connor, their real concern is deflation. They hate it. Uh ordinary people benefit greatly from deflation. And boy, could we use some of that now to get people back after having lost nearly 25% of purchasing power just in the last 5 years to get some of that back. Instead, that's just going to be gone forever because the Fed will never allow any sort of real uh deflation to take place. So, I think that's the real sort of rhetoric that that we're seeing uh coming out of the out of the Fed. But one thing I wanted to note uh kind of uh one of the really good questions was have you know this was from uh the reporter named Michael McKe. I think this is just my favorite question. He said, "Have you noticed that uh the SCP, so they put out a summary of economic projections, and this is where all the members of the FOMC, they go in and they give their projection for what's the unemployment rate going to be this year, next year, two years from now, and what's what do we think the federal funds rate is going to be what this year, next year, two years from now? What's the inflation rate going to be in all those time periods?" And then they put it together in a chart so you can see what all the projections are. They don't match it up to anyone's name, but you can get a sense of what the FOMC members are saying. Whether they believe what they're saying there sincerely or not, I don't know. It could just be a purely political exercise where they're trying to plate the masses and give a projection of stability and prosperity and that sort of thing. Uh I don't know. But but McKe goes in. and he says, "Have you noticed, Chairman Powell, that in recent years, no matter what, the the 2% price inflation target always seems to get hit two years from now." >> Yeah. >> So, he he went in and he noticed that, right, like a year ago, you go in, you look at the S&P and they're all all the members are predicting, yes, this year price inflation will be elevated, next year it'll be less elevated, and then two years from now, we'll finally hit the 2% inflation target. and he noted that in this new SCP it says that also. So no matter when it comes out two years from now it's 2% inflation again. We'll hit that target. So he's like what does how can we really what are we to make of this? Is is 2% inflation target even a serious thing? Uh and of course Powell was like well we never know what the economy is going to do. We never know uh when we're going to be successful in hitting that 2% inflation target. But I would side with McKe and say, isn't it remarkable that that 2% inflation goal getting when you're hitting that goal, that's never now, it's never in the near future, it's always two years from now. Uh and uh how come you're never going to hit it six months from now? I think that's that's an excellent thing to consider. And I think that actually does lend itself to the idea that the SAP is really kind of a political document that that tells us what they think. >> Yeah. I mean, if if you had like the you know, back in the day on Key and Peel, right? You had like the Obama translator and so you have the very proper Obama talk and you the other guy like being like an angry black man and kind of simplifying down like if you had if you had a PAL translator be like, "Yeah, it's a BS model. What do you expect?" Like like like that's and and but again like that's the whole message. That's that's that's everything pal was outlining was basically again like we we we have these we have these models you none of us expected to be in this situation, right? All of our fancy modeling we did not expect to be in this situation. This makes us uncomfortable. We're doing this minor thing now because we're g we're we're hoping that everything's going to ease up and we're going to have this this this double pressure side resolved for us now the next time we meet and where I'm talking to you guys. I have no answers for you. So like get off my case. I'm dealing with you know like I'm dealing with some rabid dogs over here just everyone be cool and like again like that doesn't seem like like the great great way of running uh you know global financial system but like you know this is the system that we've got. I think you'd see this everywhere to like the um Mises always wrote about interventionism and how it's like this philosophy and to me I've always personally defined it at least the way that government officials talk about it as the idea that we are perpetually a handful of government interventions away from basically solving all of our problems. And I think what makes the Fed unique is that they have to actually they released this report and so they put their projections out on graphs on paper. But I don't think they're unique in talking about, you know, us being perpetually a couple of years away from just bliss and everything the economy just being purely stable. And to that reporter's point, I believe he said it was every year since 2015, which I'd have to >> Oh, that's right. He did say that. Yes, >> that's crazy if that's true. But but it it lends yeah it's that same idea that like perpetually we're just a few strategic moves away from just solving essentially all of our problems having a purely stable economy. I think that's also how you know people talk about health care, housing, like all these other areas where the government is intervening. They have the same kind of orientation. And I was randomly um reading some rhetoric from uh Democrats right before Obamacare was passed and the way they were talking about it was like yeah the whole healthcare problem is just going to go away in a few years if we can just get this passed. It didn't. It never does because that's not actually like what these interventions are doing. But I think what's yeah I guess that's my point is what's unique about the Fed is they have to put it down on paper and we could just see it. But yeah, if you look back over time it's just clear that it's just ridiculous and it's just politics like you're saying though. Yeah, that that's the that's the one good thing about the facade of Fed independence is that we have this entire ceremony and ritual, right, where, you know, the the Fed goes to Congress and they give their state of the monetary policy talk and, you know, they have their Humphrey Hawkins hearings and their beige book and then they and they have, you know, their their Fed beat and and and that allows for again like this you can kind of see this because of that there's that that communication rhythm and you can kind of see what is going on so many of the other agencies, right? Like so many other aspects of the economy being hidden, you know, being being placed within the executive branch, right? You don't really don't, you know, it's it's a very sort of minor sort of trade beat to be like, you know, the the FC FTFC, you know, sort of, you know, reporter, right? You know, you don't have a sort of regular things. You get you get a few appearances here and there. Typically, when you get like, you know, them at the podium, it's it's there there's some sort of new administrative initiative, whatever that might be, whichever the administration is, right? you they don't have to regularly report like oh well yeah this is why we're justifying regulation X Y and Z and so the one the one positive aspect from the communication aspect is is that you have this very this very ceremonial component to the Fed that allows you know this sort of questioning and and of course you know this you think more and more people are starting to see that you know this is a Wizard of the Oz situation you know Wizard of Oz situation here you know that there aren't these great uh you know omnipotent uh economic gurus you know the maestros playing the thing that they're certain to see. Okay, yeah, this model this model thing right here is just kind of looks like political propaganda to me. Um, imagine if that was, you know, extrapolated out to every other aspect of our, you know, beautiful interventionist regime that we have. >> Well, I think that brings us to our last question then is really predictions, right? Where's the Fed go from from here? And they don't know. I think as you pointed out though and and just to go back to one of the good questions, it was uh knowing what we now know about how all those benchmark employment numbers were wrong last year, what would you have done differently if you'd known the real numbers? And Powell just completely blew off the question. He's like, well, we're we're focused on the future and >> on the Cincinnati. Yeah. and all we can do is really just work with the data we have. Okay, that's fine. But we're all supposed to pretend now that the Fed wasn't making decisions based on bogus numbers last year when we know this is true. They had the same numbers that we have now and see that they were wrong numbers and they just don't want to answer that question. So, we're never supposed to second guessess the Fed, I guess. So now uh moving forward there's no forward guidance, right? They abandoned that. Forward guidance is easy when the economy is always just doing the same thing quarter after quarter, month after month, right? Oh, we're just going to hold the line here. And but when things are far more um less stable, unemployment numbers can swing. Uh the the overall economic situation can change rapidly. Suddenly forward guidance is out the window. They don't want to make any predictions about what their upcoming cup policy is going to be. Nevertheless, and uh Powell warned against this. Powell noticed, of course, right? How could he not? That the market had been pricing in two or three Fed rate cuts for the rest of the year. So, everyone's expecting the Fed to keep doing that. And Powell said, "Don't assume anything out of us." He has to say that, it seems, right? I mean, is I don't really believe him when he says that. I think he just tends to do because part of what the Fed wants to do is avoid big surprises. So, if the market's all expecting the Fed to make rate cuts, aren't they just going to keep doing that then? And then also, the economy is going to continue to worsen. So, they're going to have to at least give the impression that they're going to keep doing that. So, I guess if I were to give a prediction, I would expect more 25 basis point cuts from the Powell Fed going forward. Unless something really drastic happens, like there's a real financial crisis or something like that. I would be surprised with more than a 25 basis point cut because, as we've noted, inflation still hasn't gone away. They were claiming when they were cutting back at the they were doing that election day cut back in September almost. And what was his excuse? Oh, we're cutting because we're confident that inflation is soaring back to its 2% goal. No problem. We'll be back there soon. Well, here we are a year later. It's actually going up. So, obviously wrong about that. And so can they afford to make anything more than some small 25 basis point cuts and just kind of hope against hope that inflation goes now. Now the the alternative source uh or the alternative scheme is that the economy worsens drastically and so then yeah price inflation goes away in which case then the the inflation that punishes normal people is the fact that they're not getting deflation. That's the thing. So you have kind of I think two choices moving forward. You could have the Fed continues to cut, in which case you'll start to see actual observable inflation rates increase above zero. Or you could have the economy significantly worsen, in which case the um the natural tendency would be for prices to go down below zero, right? For prices to decrease month over month or year over year, but the Fed doesn't want that to happen. So the Fed's going to get inflation up above 0%. Everyone will point to that and say, "Hey, look, inflation's under 2%. I guess everything's fine." when in reality what prices want to do is fall below zero so that people can get some of their purchasing power back because the economy stinks. Uh so I think no matter what's going to happen, we're going to see upward inflation or upward pressure on prices. Whether that'll manifest itself as above 2% or not, I don't know. It'll depend on how bad the economy is, but they're going to constantly try and push it upward, I think, at this point. And that will also give them breathing room to do what we don't have time to discuss today, which is to push down interest rates for more borrowing and uh to to get more cheap debt in line as $9 trillion is coming up for refinancing in the next year. They need cheap debt. The Treasury needs cheap debt. So that's going to be a big thing that they're going to do and that might work into your predictions. I mean, maybe that's just something that's going to pressure them further. But I think they also just for political reasons, they're going to need to be seen as doing something to uh stimulate employment. Whether that works or not, I don't think it's going to work. Um they at least need to look like they're doing something so they don't keep calling him too late Powell or do nothing. I guess they'll switch to do nothing Powell if if the employment rate significantly worsens. Uh so that's my prediction for the rest of the year. More small cuts unless there's like a major swing in the economy. So we'll see what happens. I I think Pal wants uh regular small cuts for the the foreseeable future. I think that that is what he wants. I but but you know I think there's a very real reality that you know it's where we're looking at a half point next time. Like if if the I think the jobs environment is bad and I think that's you know if if the vibes aren't better right then I I think they're going to be more I think they're going to do more. Um and and the interesting aspect of it is that within the broader context of the politicalization of the Fed that you know there there there are times where the incentive in particular just given how media powerful the Trump administration is right you know there there's large periods of time where Trump props up and hypes up the economy. I think that the powers that be within the Trump administration want far more significant rate cuts than what a couple quarter points are going to do. And I think that they are going to fit the narrative. Not that the economy is doing great and we're we're in the golden age and therefore that gives enough cover. I think they're going to hammer POW for not doing enough. He's he's once again he's he's he's you know being moderate when we need real action. We need real leadership, right? And and I I think that the pressure from the administration is the economy is worse than what the Fed thinks it is. And if I and if that you know and and I think there's reasons to think that I I think the solution of you solving it with with cheap money is not the not the way of doing it. But I think the real standing out there is is very much closer to to that narrative than it is what Pal's presenting right now. And I I so my full expectation is well I think pal would like to have a very moderate you know kind kind of keeping this sort of model I I think next time we go around I think the narrative is going to be worse. I think the vibes are going to be worse and I think it's going to be reflected in action and maybe they don't have enough consensus but at the very least I think we go from you know from from Steve Moren being the the one vote for more to two three four right I I think that will be at the very least the narrative going forward is that even if they do have a quarter rate cut next time they meet that there's going to be growing numbers of those wanting more and that itself will be a a topic of conversation even if there's not enough to have the majority. Yeah, I I basically agree with both of you, but like the one other factor is um inflation still sticking around. And my understanding based on studying it is that generally price inflation uh tends to lag behind monetary inflation by anywhere between like 1 to 3 years and we're about a year out from uh the rate cuts last year. I think it was about this time last year. So there's potential that that's what we're uh dealing with right now and that that's not just going to go away like this stuff moves slowly. So that is a factor that could make um I I agree. I think that's like pal wants a pressure release from the administration and um cutting rates would be good but it's potential that there's potential that um the stubborn inflation as they like to say could uh be a real headache going forward. you know, even even though uh that's that's if they're unified in in wanting those cuts. >> Ryan, before we go, do you know where people can find some good conversation about the the the the deflate the deflation phobia? >> I do. >> Well, I think they could. I think maybe they could find something on that topic at mises.org at the mises website >> and they could find it in person if they click the events page at mises.org. Uh he's on October 16th in beautiful Delray Beach. Joe Serno will be giving that very talk. And if you can't, you know, who who's better to hear it from than than Dr. Joe Serno? Um you I know Ryan, Connor, myself, we'll all be down there. Uh the the topic of the event is going to be economic freedom, the key to liberty. We got a allstar lineup of great speakers to talk about the Fed being awful among many other things. Um, and so if any of our audience wants to join us down there, I hear it's supposed to be a beautiful resort. Um, they're beachside, you know, if if if if your your dollar is going away anyway, what better way of putting it into life experiences, right? I'm sounding very much like a millennial than being at our 2025 supporter summit. You can find more about that at mises.org/events. And if you're a power and market listener, I'll buy you a beer. >> Should Yeah. Should we tell the millennials and Gen Z, hey, you'll never own a house anyway, so you might as well just spend your money to support us on it. >> That seems to be the narrative in some places. Uh, but no, I don't want to actually say that. So, no, don't do that. Um, you should save money, become wealthy, and then donate a lot of it to the Mises Institute >> 2035. Mises >> when you can finally afford a house. >> Well, with that, we'll go ahead and wrap up this episode of the Power and Market podcast. Thank you for joining me. Thank you all out there for listening. We'll be back next time with more. We'll see you then. [Music]
The Fed Has No Idea What It’s Doing
Summary
Transcript
[Music] Welcome back to the Power and Market podcast, the current event podcast at the Mises Institute. And with me today are two of our contributing editors, Connor O'Keefe and Tho Bishop. So I welcome everyone back to the show. Thank you for tuning in. Uh let's talk about the the big financial news this week, which was the Federal Reserve and their FOMC meeting. And they did meet, they came out. Powell had his usual Wednesday afternoon press conference for that. And to the surprise of very few, uh, the Fed lowered its target policy interest rate, uh, by 25 basis points or a quarter of a percent. So that brings it down now to uh 4.25. Just just to make sure I'm saying that right. So, uh, just to give you some context here, uh, the Fed had raised the rate after we got 40-year highs in inflation back in late 2022. This was back when the Fed was was saying repeatedly that inflation was transitory. That was no problem. the Fed had to raise the uh the target rate substantially in order to rein in some of the monetary inflation and hope that some of those uh those immense amounts of inflation would go away in 2022 and 2023 moderated somewhat. Of course, we didn't get any of the value back to our dollar, right? The no purchasing power returned. they were just able to slow down the inflation process a little bit by allowing uh the market to function by allowing more freedom in the market and allowing interest rates to rise which is what tends to happen when the Fed takes a break from slamming down interest rates using uh monetary inflation and its open market operations. So now, however, they decided to just hold steady throughout most of 2024, but then they got real political in late 2024, toward the end of the election, and they started a new cutting uh cycle. And many people suspect at the time, probably correctly, that there was no reason for the Fed to start cutting again in late 2024. uh inflation was still elevated above this is that his price inflation was still elevated above the Fed's 2% inflation target. So why cut then? Oh well it just happened to be a good time to stimulate employment in the economy right at the end of a national election. So they did that and then as soon as Trump comes in they decide oh we won't do anything more which was actually the right decision. They should have stopped just doing things uh and let the market take over that process. But they're back. They're back to cutting again. And uh we'll talk a little bit I think about why that is. Uh so will they keep cutting? We don't know. But everybody was expecting a cut at this time. There was I think maybe the the only surprise here was I think a lot of people were hoping for a 50 point basis cut uh basis point cut. They only got 25% which seems more like a Powell thing to do. Do do the uh quarter of a point uh thing. So that's where we are in terms of the Fed. Uh and I think then we can just we just need to ask ourself right why now? Why did why did the Fed decide that now's a good time to cut though? What do you think on that? >> Well, we can make this episode really nice and simple because if we're trying to understand the Fed's meeting this week, it's the Fed doesn't know. You you said you we don't know what the Fed's going to do in the future. The Fed has no idea what's going it's going to do in the future. The entire message that Pal gave was okay, we're starting to see increase uh concern on the employment front. Inflation is still above where we want. We have to do something. So, we're going to do a quarter point now, but you know what's going to happen? I don't know. Um and that's essentially everything is is built and and to be fair to be fair, right? You know, you know, they are there's there's an element an element of humility if you understand what they're saying. Of course, it's packaged in fed speak. So it's like you know so it's it's big on emphasis of okay we're all getting together we're all having these conversations we're all independent um you know we understand why like you know there's a whole element into the conversation about why jobs data is so unreliable and they they talked about like the underlying issues with the modeling not simply with survey responses but with different components that go into it but but at the core of this message is things are uncertain. We're dealing with pressure on both sides. We don't know how to balance those two concerns right now. We're doing something now. Who knows the impact it's going to have in the future? Who knows where it will be? Um, and so the Fed does not know. The Fed's lost control of of the ship at this point. And they are communicating that as clearly as they possibly can. Uh, Jackson Hole a couple weeks ago, right? There was conversations about changing some of their frameworks, some of their internal sort of things by which that they conduct monetary policy. So, this is a very big period of admitted uncertainty here. The one thing that I think is worth noting that is interesting is obviously all of this is under the shadow of Trump's very clear explicit desire to effectively politicize the Fed. Um this was the coming out party for Steven Mirren. Uh there there was a question I I enjoyed that that Pal got about like yo men's still in the the executive u you know still works for the executive office. That's never happened before. You know how was that welcome coming in? And like Pal was like oh no we you know we had cake and we we're all good to He's like, "No, I'm not talking anymore about that. I have a feeling Steven Moren is not his favorite person in the world." Um, but that dynamic, but but what's what's interesting about that though is, you know, there's been a lot of conversation about, okay, well, you know, you add Marin, you get rid of Cook, we change the number here, and all of a sudden you have a Fed majority board. It is worth noting that the quarter point move, right, the the the small sort of, you know, Goldilocks middle ground sort of dynamic was what 11 to1 vote, right? That Marin was the only dissenting vote wanting more. And so that includes everyone else on the Federal Reserve Board that comes from, you know, Trump's fingerprints was not on board with the more aggressive move. Moran was the the lone hold out there. Um, and so that is something that is worth working about. warrant. Yeah, since since we're we're you know it's it's it's criminal nom what's the the whole Kremlin Kremlin studies you know that's effectively what we're trying to do now and trying to understand how the Fed operates but that is worth noting that Moren singularly was the one voice for a more aggressive cut than what we got >> yeah Connor I mean some people describe this as uh Powell bending the knee to Trump that the order went out to lower rates uh do you think that's like an accurate I that that implies that Powell has some deep principles uh to which he adheres. I mean, I don't know. Is that a fair characterization or do you think it really was sort of a Powell finally giving in to Trump pressure sort of thing? >> Yeah, I think the Wall Street Journal editorial board said it's Trump's Fed now. Like it's basically it's over. The political takeover has occurred. And I that's not my read as well. I think to the extent that politics was a factor and it was notable in the press conference, it was a lot more political. the questions were a lot more about politics than I'm used to saying, but the extent to which uh that is a factor, it feels more like Pal trying to thread the needle, maybe given a little bit so that Trump kind of stops chirping about it without giving in too much so that uh the, you know, anti-Trump forces uh start making noise on the other side. I think having um Trump's effort to get Cook out fall apart, at least for now. It looks like it's going to the Supreme Court um is good for that, you know, kind of effort from Pal's perspective. Um and I thought it was interesting. The the most notable moment of the presser for me was that um Pal was asked he was asked a number of questions specifically about uh Myin, however you you say his name. And at one point he's just sort of I don't remember what the specific question was but it was about him essentially being like this asset of Trump and Pal did not really push back at it. he just accepted the idea that he is a political asset on the Fed board now. And his way to kind of talk it down was that he's outnumbered, that all the other economists there are, you know, purely looking at the data. And so this one kind of political figure um would have to be really convincing and persuade using data. But so like it it was a way to kind of shrug off that question right now. But like implied in that is that okay, but if Trump can get more people in there, he's already sort of accepting this whole idea that a political takeover has started it, you know, it isn't anywhere near the point where it needs to be if it's going to like actually really change the trajectory of the Fed, you know, based on uh Pal's arguments. But it was just interesting to me that he completely accepted that framing. And I think as we go forward if they're able to get Cook out of there, which is very much up in the air, but you know, Pal's term I think is over in May. So like changes are coming at the Fed and Trump is not going anywhere for a while. So there there's a lot of potential for this this whole conversation about the politicization of the Fed to only accelerate from here, even if they're trying to kind of uh thread the needle and be a little bit giving to both sides right now. Well, and of course, right, these these people who serve on the board of governors, they have these really long terms. So, uh Trump's going to have to come up with uh more uh reasons to fire people for cause if he's going to force some more people out within the next 3 years. And I don't know, Lisa Cook gave him an opportunity for that. I don't know if other members of the board uh are going to be so easy but yes it was actually not you mentioned it right there were a lot of political questions during the press conference and I thought uh they have peppered those in a little bit increasingly over the last 6 months or so just because Trump has been so public about it and that's the one thing I want to emphasize right is there is always pressure being applied to the Fed from various corners in Washington the difference with Trump is that he's just public about it. I mean, now we have all these stories about like LBJ flying out to his ranch and and getting the um I think it was uh William McZnney uh Martin out to his property out in Texas and basically threatening the guy physically and things like that. These tactics have always been there. It's just Trump like go goes and does it on Twitter. So then people in the media feel the need to ask these uh blatant political questions. And it was actually fun watching some of the uh the reporters, you could tell that some of them were supremely uncomfortable asking the political questions. One guy, he kept fidgeting toward the end of the press conference. He uh just kind of like he kept like rubbing his leg. You could tell he did not want to be asking that question, but I guess his boss has probably told him you got to cuz the question was really uncomfortable, too. It was something like under what conditions chairman Powell would you be willing to resign from the board sort of question which of course you already we already know how Powell answers that stuff. He just says you know either I cannot comment or under no conditions will I resign. Uh so that was a go nowhere uh question but yeah they included a fair amount of that probably more so than usual as you say in this. Uh, but there were some good qu there were some good economics questions. One of my favorites and the guy's like hardly an in Austrian or anything like that. I like Steve Leeman's questions a lot of the time. They're a little bit more hard-hitting and uh his question this time just had to do with right with inflation still going up um how are you justifying uh this cut? And I think that's a lot of the question is why now is with inflation still high, why how are you justifying this cut now? And Powell's pretty slick when it comes to that stuff. He said, "Oh, it's we got to balance our two mandates and that sort of thing." So, he gave a lot of very political sounding answers uh to that that question. But I I don't think uh that was to the satisfaction of of many people. Well, it just seems like they just don't care very much about price inflation right now. >> Well, there's the other element to it where, you know, again, he's talking about how they've recognized these long simmering issues with the employment data, right? And and I I think the question was asked, right? Basically, like, you know, if you'd have known now what the jobs market looked like, you know, last time around, would you have cut then? And and Pal didn't he said basically, you know, we we did what we did. But like if if the current justification is, you know, particularly baked around the revisions of the job data and if you knew that the job data was faulty and you knew that it was probably overstating things, then again it goes back to this point. Okay, well then why again we would argue we shouldn't have done that. But like if that is the motivating thing and you knew this was baked in the DNA, then why didn't you do it, you know, last month? Okay. So, so, so that that again that that goes to the point where again the Fed is is is, you know, is masks itself under this dynamic that we are serious people responding seriously to serious data. And the reality of what they're having to talk about is that the data is not serious. The the the incentives on the on the board are being made less serious, being made more political. Again, they'll say like, "Oh, well, we're standing against it." Whatever. I mean, again, historically, just not true. And so so you know and and they're now stuck in a situation that they themselves acknowledge that from their own narrative is novel is you know does not happen that that that much right and they have no firmer idea on exactly where things are going to go. Um so again this is this is pals fed um you know this is this is where we are and that the politicalization is only going to get more intense. the data is not going to significantly improve and they they they do not know you know there was a there was a question asked about Scott Bessant and some of his critiques of the Fed um which are at least he had he I don't think he's threatened to to punch Jay Pal like he did our good friend Bill Py so you know pal has that going for him but um um but but you know and and Pal like oh you know we're we're streamlining we're cutting you know we're already in this process and then there was convers would you consider more more extreme reforms and like oh we'll always consider And so like the Fed like you know and that itself I think is interesting right like the to me that's that itself is kind of an acknowledgement of Pal to the best that someone can be who is an institutional man right like you know I kind of vision personally like Pal being similar in temperament to John Roberts right the very political non-political sort of institutional driven sort of guy um and and but like but I think that that itself the fact that he was not more assertive in defending the current structure of the Fed Fed um and obviously he's not going to you know support radical change like that but like I I think it goes to the the the difficulty of defending how the Fed currently operates given again everything that's been else has been laid out. I think that is an interesting dynamic where the Fed is right now. >> Yeah. The uh the the question about Bessant right was what will you submit to an independent uh inquiry and really trying to nail him down on that. I'm surprised he didn't actually say that. Uh well, of course we uh submit to the people who uh approved our charter, Congress. Congress can govern us in any way they want, which is absolutely true. Um but so much of what's going on right now is the executive branch just coming in and just on the whims of the president trying to uh to do whatever whatever he wants. And that's a point that Alex Pollock has made a few times recently too, one of our senior fellows, right? that no, the Fed is just supposed to be independent of the executive branch, not of the government entirely. The Congress should absolutely govern the Fed, but that's just not what's going on right now. The political situation is very different. And and it's worth noting as well that um Pollock was not just simply making the case with with us, not making simply making the case in in print, but was actually on the Hill um you know for one of the it used to be the subcommittee for you know monetary policy. At one point it was a domestic monetary policy subcommittee because they didn't want Ron Paul when he was chair of it to also be in charge of international monetary policy. That's a whole fun topic in its own right. But but um but uh Alex Pollock was actually part of a panel on Fed reform. from the potentials, the need, etc. Uh we we've got his testimony up on the um power and market blog. Uh but but that's also interesting the fact that again it demonstrates a demand and interest from lawmakers which has been ground for a while. Like it is worth noting just the context that you know since 2008 there has been the occasional conversation about more serious Fed reform, right? Rules-based monetary policy. We're going to statutoily require the Taylor rule rather than the dual mandate. um you know on the left we get conversations about you know revisiting the 2% mandate uh inflation targeting upwards you know that there has been in the background um these pre-existing kind of conversations here but u very good to get I mean I think some of of of u Alex Pollock's recommendations was a focus on sound money mandate rather than kind of dual dual mandate there um getting out of the mortgage industry entirely which is a major part of the the the Fed's portfolio is worth noting that part of the announcement of the policy was quantitative tightening if you will, and selling off and allowing rolling off of securities and some of those assets that they do have. Um, but I I do recommend if you're interested in this and uh Alex Pollock had you it's not, you know, radical Rothbart and in the Fed tomorrow and, you know, gold standard will reign. Um, you know, it is a lot more wonkish. It's a lot more kind of middle ground sort of reforms there, but it is worth noting that that Pollock was on was was on the hill um talking about some of these issues um to to those folks. >> Yeah, it was good stuff. And I I think like right now sort of really lends credence to this idea of like moving away from the dual mandate because it's sort of at least it was taught to me in grad school that the two sides of it sort of move opposite to each other. But right now that's not happening and inflation is staying higher but you know jobs getting a little bit worse. That's what Pal was sort of that that was the reason he gave was that that change in data. They're trying to he you know it was classic Fed speed. I think it was like something like moving more towards neutral or something like that. But really what it signals is that um they don't view inflation as as big of a problem as you know other things. And that kind of gets to the the broader topic of like the whole 2% target and everything. And I've always sort of to me as long as I've been really interested in this stuff, it's always struck me as more of a uh born more out of an aversion to deflation. And it seems like they, you know, they talk about stable prices. is when it comes to their rhetoric, stable prices is what they're always talking about. How, you know, that that's that's their goal. They're trying to bring about stable prices. But in action, it seems like it it seems like they were a little bit stressed more stressed back. I think it was under yelling when they were below the 2% target. That seemed like a little bit more of a priority than, you know, the fact that it's above 2% seemed during the press conference. Uh that was only yesterday. Yesterday to me, >> oh 100%. when when it was below 2% the target 2%. Because the economy was crappy, frankly, right, for that whole period after the Great Recession, you had boy 7 8 years or so where the economy was just simply underperforming and where and and a lot of that asset price growth even during that period that people were crowing about that was limited to a number of big coastal cities. If you were a homeowner in middle America, you you weren't really benefiting from that very much. And there wasn't any real increase in real incomes throughout much of middle America. You didn't really see a return to old pre uh great recession income numbers until about 2017 through 2019 or so. And that was due to another round of massive monetary inflation where there were some gains in productivity and such. Uh also some some improvements in international trade where people finally did start to uh see some real appreciation in their their overall net worth and income. Uh but for most of that time under Yelen there was no real improvement and so you had these really low price inflation levels because there were a lot of disinflationary uh effects from just the mediocre economy. And so they were freaking out all the time about how inflation's too low. We need more price stability. By which they meant more inflation because they felt there was too much downside movement in inflation. And they were always talking about how now maybe we even need to get up the overall average rate above 2%. We need to hold inflation above 2% for a time. They never ever would say oh well after say what happened in 2022. Oh the inflation rate was way above 2% for a while. So now we need to hold it below 2% for a while. In fact, Powell at one press conference was straight up asked that, "Would you consider having it bel um having the um trying to move things below 2% in order to get that average back down to 2%?" He just straight up said, "No, that's never something we would consider doing." So, the average that that they're talking about really what that means is 2% inflation is the floor. It's not a place they want to like kind of bounce around. they want to bounce around above 2%. And so you're if you see then with them talking about price stability in most contexts that actually means bringing price inflation up. It's just now it's become a political problem for them price inflation. So now they're talking about getting it down. But usually that's just not what worries them. It's as you say Connor, their real concern is deflation. They hate it. Uh ordinary people benefit greatly from deflation. And boy, could we use some of that now to get people back after having lost nearly 25% of purchasing power just in the last 5 years to get some of that back. Instead, that's just going to be gone forever because the Fed will never allow any sort of real uh deflation to take place. So, I think that's the real sort of rhetoric that that we're seeing uh coming out of the out of the Fed. But one thing I wanted to note uh kind of uh one of the really good questions was have you know this was from uh the reporter named Michael McKe. I think this is just my favorite question. He said, "Have you noticed that uh the SCP, so they put out a summary of economic projections, and this is where all the members of the FOMC, they go in and they give their projection for what's the unemployment rate going to be this year, next year, two years from now, and what's what do we think the federal funds rate is going to be what this year, next year, two years from now? What's the inflation rate going to be in all those time periods?" And then they put it together in a chart so you can see what all the projections are. They don't match it up to anyone's name, but you can get a sense of what the FOMC members are saying. Whether they believe what they're saying there sincerely or not, I don't know. It could just be a purely political exercise where they're trying to plate the masses and give a projection of stability and prosperity and that sort of thing. Uh I don't know. But but McKe goes in. and he says, "Have you noticed, Chairman Powell, that in recent years, no matter what, the the 2% price inflation target always seems to get hit two years from now." >> Yeah. >> So, he he went in and he noticed that, right, like a year ago, you go in, you look at the S&P and they're all all the members are predicting, yes, this year price inflation will be elevated, next year it'll be less elevated, and then two years from now, we'll finally hit the 2% inflation target. and he noted that in this new SCP it says that also. So no matter when it comes out two years from now it's 2% inflation again. We'll hit that target. So he's like what does how can we really what are we to make of this? Is is 2% inflation target even a serious thing? Uh and of course Powell was like well we never know what the economy is going to do. We never know uh when we're going to be successful in hitting that 2% inflation target. But I would side with McKe and say, isn't it remarkable that that 2% inflation goal getting when you're hitting that goal, that's never now, it's never in the near future, it's always two years from now. Uh and uh how come you're never going to hit it six months from now? I think that's that's an excellent thing to consider. And I think that actually does lend itself to the idea that the SAP is really kind of a political document that that tells us what they think. >> Yeah. I mean, if if you had like the you know, back in the day on Key and Peel, right? You had like the Obama translator and so you have the very proper Obama talk and you the other guy like being like an angry black man and kind of simplifying down like if you had if you had a PAL translator be like, "Yeah, it's a BS model. What do you expect?" Like like like that's and and but again like that's the whole message. That's that's that's everything pal was outlining was basically again like we we we have these we have these models you none of us expected to be in this situation, right? All of our fancy modeling we did not expect to be in this situation. This makes us uncomfortable. We're doing this minor thing now because we're g we're we're hoping that everything's going to ease up and we're going to have this this this double pressure side resolved for us now the next time we meet and where I'm talking to you guys. I have no answers for you. So like get off my case. I'm dealing with you know like I'm dealing with some rabid dogs over here just everyone be cool and like again like that doesn't seem like like the great great way of running uh you know global financial system but like you know this is the system that we've got. I think you'd see this everywhere to like the um Mises always wrote about interventionism and how it's like this philosophy and to me I've always personally defined it at least the way that government officials talk about it as the idea that we are perpetually a handful of government interventions away from basically solving all of our problems. And I think what makes the Fed unique is that they have to actually they released this report and so they put their projections out on graphs on paper. But I don't think they're unique in talking about, you know, us being perpetually a couple of years away from just bliss and everything the economy just being purely stable. And to that reporter's point, I believe he said it was every year since 2015, which I'd have to >> Oh, that's right. He did say that. Yes, >> that's crazy if that's true. But but it it lends yeah it's that same idea that like perpetually we're just a few strategic moves away from just solving essentially all of our problems having a purely stable economy. I think that's also how you know people talk about health care, housing, like all these other areas where the government is intervening. They have the same kind of orientation. And I was randomly um reading some rhetoric from uh Democrats right before Obamacare was passed and the way they were talking about it was like yeah the whole healthcare problem is just going to go away in a few years if we can just get this passed. It didn't. It never does because that's not actually like what these interventions are doing. But I think what's yeah I guess that's my point is what's unique about the Fed is they have to put it down on paper and we could just see it. But yeah, if you look back over time it's just clear that it's just ridiculous and it's just politics like you're saying though. Yeah, that that's the that's the one good thing about the facade of Fed independence is that we have this entire ceremony and ritual, right, where, you know, the the Fed goes to Congress and they give their state of the monetary policy talk and, you know, they have their Humphrey Hawkins hearings and their beige book and then they and they have, you know, their their Fed beat and and and that allows for again like this you can kind of see this because of that there's that that communication rhythm and you can kind of see what is going on so many of the other agencies, right? Like so many other aspects of the economy being hidden, you know, being being placed within the executive branch, right? You don't really don't, you know, it's it's a very sort of minor sort of trade beat to be like, you know, the the FC FTFC, you know, sort of, you know, reporter, right? You know, you don't have a sort of regular things. You get you get a few appearances here and there. Typically, when you get like, you know, them at the podium, it's it's there there's some sort of new administrative initiative, whatever that might be, whichever the administration is, right? you they don't have to regularly report like oh well yeah this is why we're justifying regulation X Y and Z and so the one the one positive aspect from the communication aspect is is that you have this very this very ceremonial component to the Fed that allows you know this sort of questioning and and of course you know this you think more and more people are starting to see that you know this is a Wizard of the Oz situation you know Wizard of Oz situation here you know that there aren't these great uh you know omnipotent uh economic gurus you know the maestros playing the thing that they're certain to see. Okay, yeah, this model this model thing right here is just kind of looks like political propaganda to me. Um, imagine if that was, you know, extrapolated out to every other aspect of our, you know, beautiful interventionist regime that we have. >> Well, I think that brings us to our last question then is really predictions, right? Where's the Fed go from from here? And they don't know. I think as you pointed out though and and just to go back to one of the good questions, it was uh knowing what we now know about how all those benchmark employment numbers were wrong last year, what would you have done differently if you'd known the real numbers? And Powell just completely blew off the question. He's like, well, we're we're focused on the future and >> on the Cincinnati. Yeah. and all we can do is really just work with the data we have. Okay, that's fine. But we're all supposed to pretend now that the Fed wasn't making decisions based on bogus numbers last year when we know this is true. They had the same numbers that we have now and see that they were wrong numbers and they just don't want to answer that question. So, we're never supposed to second guessess the Fed, I guess. So now uh moving forward there's no forward guidance, right? They abandoned that. Forward guidance is easy when the economy is always just doing the same thing quarter after quarter, month after month, right? Oh, we're just going to hold the line here. And but when things are far more um less stable, unemployment numbers can swing. Uh the the overall economic situation can change rapidly. Suddenly forward guidance is out the window. They don't want to make any predictions about what their upcoming cup policy is going to be. Nevertheless, and uh Powell warned against this. Powell noticed, of course, right? How could he not? That the market had been pricing in two or three Fed rate cuts for the rest of the year. So, everyone's expecting the Fed to keep doing that. And Powell said, "Don't assume anything out of us." He has to say that, it seems, right? I mean, is I don't really believe him when he says that. I think he just tends to do because part of what the Fed wants to do is avoid big surprises. So, if the market's all expecting the Fed to make rate cuts, aren't they just going to keep doing that then? And then also, the economy is going to continue to worsen. So, they're going to have to at least give the impression that they're going to keep doing that. So, I guess if I were to give a prediction, I would expect more 25 basis point cuts from the Powell Fed going forward. Unless something really drastic happens, like there's a real financial crisis or something like that. I would be surprised with more than a 25 basis point cut because, as we've noted, inflation still hasn't gone away. They were claiming when they were cutting back at the they were doing that election day cut back in September almost. And what was his excuse? Oh, we're cutting because we're confident that inflation is soaring back to its 2% goal. No problem. We'll be back there soon. Well, here we are a year later. It's actually going up. So, obviously wrong about that. And so can they afford to make anything more than some small 25 basis point cuts and just kind of hope against hope that inflation goes now. Now the the alternative source uh or the alternative scheme is that the economy worsens drastically and so then yeah price inflation goes away in which case then the the inflation that punishes normal people is the fact that they're not getting deflation. That's the thing. So you have kind of I think two choices moving forward. You could have the Fed continues to cut, in which case you'll start to see actual observable inflation rates increase above zero. Or you could have the economy significantly worsen, in which case the um the natural tendency would be for prices to go down below zero, right? For prices to decrease month over month or year over year, but the Fed doesn't want that to happen. So the Fed's going to get inflation up above 0%. Everyone will point to that and say, "Hey, look, inflation's under 2%. I guess everything's fine." when in reality what prices want to do is fall below zero so that people can get some of their purchasing power back because the economy stinks. Uh so I think no matter what's going to happen, we're going to see upward inflation or upward pressure on prices. Whether that'll manifest itself as above 2% or not, I don't know. It'll depend on how bad the economy is, but they're going to constantly try and push it upward, I think, at this point. And that will also give them breathing room to do what we don't have time to discuss today, which is to push down interest rates for more borrowing and uh to to get more cheap debt in line as $9 trillion is coming up for refinancing in the next year. They need cheap debt. The Treasury needs cheap debt. So that's going to be a big thing that they're going to do and that might work into your predictions. I mean, maybe that's just something that's going to pressure them further. But I think they also just for political reasons, they're going to need to be seen as doing something to uh stimulate employment. Whether that works or not, I don't think it's going to work. Um they at least need to look like they're doing something so they don't keep calling him too late Powell or do nothing. I guess they'll switch to do nothing Powell if if the employment rate significantly worsens. Uh so that's my prediction for the rest of the year. More small cuts unless there's like a major swing in the economy. So we'll see what happens. I I think Pal wants uh regular small cuts for the the foreseeable future. I think that that is what he wants. I but but you know I think there's a very real reality that you know it's where we're looking at a half point next time. Like if if the I think the jobs environment is bad and I think that's you know if if the vibes aren't better right then I I think they're going to be more I think they're going to do more. Um and and the interesting aspect of it is that within the broader context of the politicalization of the Fed that you know there there there are times where the incentive in particular just given how media powerful the Trump administration is right you know there there's large periods of time where Trump props up and hypes up the economy. I think that the powers that be within the Trump administration want far more significant rate cuts than what a couple quarter points are going to do. And I think that they are going to fit the narrative. Not that the economy is doing great and we're we're in the golden age and therefore that gives enough cover. I think they're going to hammer POW for not doing enough. He's he's once again he's he's he's you know being moderate when we need real action. We need real leadership, right? And and I I think that the pressure from the administration is the economy is worse than what the Fed thinks it is. And if I and if that you know and and I think there's reasons to think that I I think the solution of you solving it with with cheap money is not the not the way of doing it. But I think the real standing out there is is very much closer to to that narrative than it is what Pal's presenting right now. And I I so my full expectation is well I think pal would like to have a very moderate you know kind kind of keeping this sort of model I I think next time we go around I think the narrative is going to be worse. I think the vibes are going to be worse and I think it's going to be reflected in action and maybe they don't have enough consensus but at the very least I think we go from you know from from Steve Moren being the the one vote for more to two three four right I I think that will be at the very least the narrative going forward is that even if they do have a quarter rate cut next time they meet that there's going to be growing numbers of those wanting more and that itself will be a a topic of conversation even if there's not enough to have the majority. Yeah, I I basically agree with both of you, but like the one other factor is um inflation still sticking around. And my understanding based on studying it is that generally price inflation uh tends to lag behind monetary inflation by anywhere between like 1 to 3 years and we're about a year out from uh the rate cuts last year. I think it was about this time last year. So there's potential that that's what we're uh dealing with right now and that that's not just going to go away like this stuff moves slowly. So that is a factor that could make um I I agree. I think that's like pal wants a pressure release from the administration and um cutting rates would be good but it's potential that there's potential that um the stubborn inflation as they like to say could uh be a real headache going forward. you know, even even though uh that's that's if they're unified in in wanting those cuts. >> Ryan, before we go, do you know where people can find some good conversation about the the the the deflate the deflation phobia? >> I do. >> Well, I think they could. I think maybe they could find something on that topic at mises.org at the mises website >> and they could find it in person if they click the events page at mises.org. Uh he's on October 16th in beautiful Delray Beach. Joe Serno will be giving that very talk. And if you can't, you know, who who's better to hear it from than than Dr. Joe Serno? Um you I know Ryan, Connor, myself, we'll all be down there. Uh the the topic of the event is going to be economic freedom, the key to liberty. We got a allstar lineup of great speakers to talk about the Fed being awful among many other things. Um, and so if any of our audience wants to join us down there, I hear it's supposed to be a beautiful resort. Um, they're beachside, you know, if if if if your your dollar is going away anyway, what better way of putting it into life experiences, right? I'm sounding very much like a millennial than being at our 2025 supporter summit. You can find more about that at mises.org/events. And if you're a power and market listener, I'll buy you a beer. >> Should Yeah. Should we tell the millennials and Gen Z, hey, you'll never own a house anyway, so you might as well just spend your money to support us on it. >> That seems to be the narrative in some places. Uh, but no, I don't want to actually say that. So, no, don't do that. Um, you should save money, become wealthy, and then donate a lot of it to the Mises Institute >> 2035. Mises >> when you can finally afford a house. >> Well, with that, we'll go ahead and wrap up this episode of the Power and Market podcast. Thank you for joining me. Thank you all out there for listening. We'll be back next time with more. We'll see you then. [Music]