Why Fed Is About To Make ‘Biggest Policy Error In History’ | Danielle DiMartino Booth
Summary
Fed Policy Error: Guest argues the Federal Reserve is maintaining an overly hawkish stance despite clear signs of slowing growth and rising recession risk.
Inflation Dynamics: Headline CPI is elevated due to oil price shocks, while supercore services inflation is falling, signaling weakening demand and wage disinflation.
Tactical Allocation: Recommends the short end of the yield curve, expecting the Fed to be forced into a sharp pivot that benefits short-duration bonds.
Inflation Hedging: Precious metals are pitched as a safe haven with a likely floor, providing protection against a possible credit event, financial stress, or Fed policy missteps.
Labor and Consumers: Rising layoffs, weak personal consumption, and deeply recessionary consumer sentiment point to deteriorating labor market conditions and pressure on housing.
Market Signals: Despite volatility, the 10-year yield edged lower, suggesting markets prioritize growth-shock risks over inflation fears.
Company Mentions: Disney noted among firms announcing layoffs; Chevron acknowledged as a dividend refuge, though discussion was brief and non-specific.
Policy and Politics: Uncertainty around Fed leadership and political factors may delay cuts, extending economic strain on households and small businesses.
Transcript
This is going to go down as one of the biggest policy errors in the history of the Federal Reserve. The Federal Reserve is going to ignore what's in staring them in the face. The idea that the Fed is going to hike rates in this environment is ludicrous. CPI data came out harder than expected today on the back of higher oil prices. And we had the Fed meeting minutes released as well. And uh it it looks like that several members of the FOMC have considered at the last meeting the possibility of raising interest rates. We'll talk about this and much more with Danielle D. Martino Boot, CEO of Qi Research. Welcome back Danielle. Good to see you again. >> Great to see you, David. Thanks for having me again. >> Headline CPI 3.3%, highest since May 2024. Core CPI at 2.6%. Not as much of an increase in the core side, X food and energy, but still higher than the previous month of 2.5%. But we'll get back to inflation in more detail in just a bit. Let's take a look at this statement from the minutes. Several participants indicated that they would have supported a two-sided description of the committee's future interest rate decisions, reflecting the possibility that upward adjustments to the target range for the federal fund federal funds rate could be appropriate if inflation remains at above target levels. If inflation remains at above target levels, that's exactly what we got today. Are we getting interest rates uh risen, in other words, hiked this year? Danielle, >> um you know, I I really cannot see any pathway to making that happen. I think this is more than anything else political posturing. Um we are seeing a very rapid slowdown in growth. Uh we had um very old and dated GDP data come in for the fourth quarter at 0.5%. Inside of that number was a 1.9% personal consumption expenditure number. With January and February data in hand for 2026 so far that 1.9% rate has gone down to a 0.6% rate and this is again January February before the hit from higher gasoline prices came. So David, we are seeing the US economy and hearing from some of my clients, hearing from other economists that sellside firms right now are actually throwing around the Rword, the recession word. Um, it's a pretty dramatic shift that we're seeing in sentiment. And the idea that the Fed is going to hike rates in this environment is ludicrous. >> Why were they even considering it then? >> Well, as I said, I think I I think more than anything else, it's political posturing. They're trying to present uh a very hawkish outward stance uh until these criminal charges against Jay Powell have been dropped. They still have not been. And we're now at the point where J Pal's theoretically only got another month as chair of the Fed. And yet we haven't even begun to talk about uh Kevin Worsh getting through the process of the the the vote in the committee to get him into a vote for a full confirmation. Why is that? Because the criminal charges against Jay Powell are still sitting there >> every day that goes by. I'm I'm convinced that J Pal's going to be at the podium for the rest of the year. David, >> that's not that's not what the White House said, Danielle. I'm not I'm not criticizing your opinion, but this just came in from Reuters yesterday. White House confident wors will lead in May. What is the source of this confidence, you think? >> Uh, you know, I have absolutely no idea because every time a headline like this hits, Senator Tom Tillis, who does not leave office until January the 3rd, 2027, reiterates the fact that until these criminal charges are dropped, the vote for worse is not going to go to committee. So, it's it's great to voice confidence. It's it's the job of someone like Kevin Hasset to voice confidence, but >> it doesn't matter if there's a brick wall that remains in front of getting Kevin Worsh even in the seat to be considered to be confirmed. >> And also remind us again, wasn't Worsh one of the more hawkish candidates um up for grabs? And so with inflation data now hotter because of oil, why would the White House confirm the most hawkish of their choices in a very inflationary environment? >> Well, first of all, the White House doesn't really have a choice here because Worsh has officially and formally been nominated to be the next chair. So, this is their man. They're standing by this person. Um, but more importantly, uh, you know, it's not just individuals at the Fed. It's not just PhD economists. Uh, anybody can tell you that this inflation shock, this supply shock is going to have a greater impact on growth going forward and it's going to slam growth, which as we just discussed is the Atlanta Fed GDP now forecast, they're usually way up there. It's at 1.3%. for the first quarter after a 0.5% and and we know that the layoffs Disney is the latest in the stream. We know that the layoffs just keep coming. I David, apologies to people who are worried about hot inflation, but if you're pouring all this money into your gas tank, you got a lot less money to spend on everything else. >> Yeah. And I think uh going back to uh the Fed's monetary policy, I think a lot of people looking at what's going on in the world right now are disappointed at the fact that the chances of a cut are now slim to nothing. Uh look at the CMA CM Fed watch tool. No chance of a cut by late April. In fact, we're not getting any chance until basically end of the year December meeting. And Danielle, you were on the show with me two weeks ago, about two weeks ago, saying that the Fed basically needs to act now. Small businesses depend on it. A lot of Americans depend on it. Corporate America depends on it. And now it's not looking like we're getting it. So what's going to happen to the economy? >> You know, David, this is going to go down as one of the biggest policy errors in the history of the Federal Reserve. The Federal Reserve is going to ignore what's staring them in the face and keep monetary policy overly tight into recession. The National Bureau of Economic Research follows very closely personal income after government transfers. That's got a recessionary reading. Right now, we have quite a few months of negative signs in front of payrolls. Uh granted, March March was strong, but you're in Vancouver, south of the border in the United States. It was the warmest march on record in the history of the United States. And somehow the Bureau of Labor Economics conjures up 79,000 jobs that were Americans who were out of work in March because of the cold weather. And then they dream up another 100,000 jobs that were created because of the birth death adjustment. So again, David, I think this is going to go down as a huge, huge policy error in the history of the Federal Reserve. >> Before we continue with the video, let's talk about your most important asset, your personal data and privacy. Now, your personal data is constantly being collected and sold and exposed online from places like shady data broker sites and even big data breaches. So, your private information, like your name, address, and phone number, is out there on the internet, and it's easier to find than you actually think. That's why I recommend today's sponsor, Delete Me. It takes a few minutes to set up, and they handle the entire process. They find where your information appears, verify those listings, and submit removal requests to hundreds of data broker websites. They also continue monitoring over time since this data can resurface and reappear. I've been using it for over a year and they have reviewed over 325 listings for my information. The reports show exactly what was found and what was removed which makes the process transparent. Check it out now. Scan the QR code on the screen or go to jointdeme.com/david link in the description down below and use my code davidin for 20% off. Take control of your privacy today. Now back to the video. What what what should they be doing? Forget policy error. What is the correct policy? >> The correct policy right now is to say American households, small businesses, you are being absolutely gig workers, Uber workers, lift workers, you're being slammed slammed by higher gas prices and you're looking at wage disinflation and layoffs keep rising. You know what? We're going to be honest with you and say we're we're going to stand with you. Rate cuts might not do very much in this environment. They might not. But it's a heck of a lot more genuous as opposed to disingenuous to at least publicly side with working men and working women instead of just ignoring them because of what's going on in politics. >> And we have to we have to also uh bear in mind that uh you know there are several causes of inflation. It's yes oil has gone up. Um yes people are concerned about prices at the pump. But let's break this down here. Look, Danielle, this is the uh total assets of the Fed balance sheet here, and that's been going up. To what extent has a higher CPI print uh been due just to oil versus an expanding balance sheet here? Well, David, if you look back at the full history of quantitative easing until the Fed actually monetized federal spending, which was in the post-pandemic era, the Fed could not get inflation up to its 2% target. So, money printing alone has never worked. It's not going to start working anytime soon either. Right now, the Fed's just trying to make sure that there's enough liquidity in the system because this private credit situation will not go away. So, the threat is a lack of liquidity, which by the way is highly deflationary. >> So, let's suppose the Fed doesn't do anything. They they don't change rates. Uh they keep it unchanged. Uh where do you see the 10-year yield headed then? >> Well, you know, it's it's interesting. We I I think you can agree we've had a rather dramatic week in the markets and yet the 10-year Treasury yield has fallen from 4.35% to 4.31%. Looking just through the prism of yields, a lot of nothing has taken place this week. We've just seen yields come down a bit. Um the fact that yields are not going up, however, tells you how much they're disregarding this inflationary threat and paying heed to this threat of a growth shock. >> Uh I don't recall uh Powell using the word transitory a lot, but this is a uh this is a CPI chart that CNBC put together. Good visual here. Monthtomonth, the biggest increase since 2022. We know what happened in 2022. The Fed raised rates and everything crashed. My question is Danielle um what will trigger a hike? You said that it's you know unfathomable that they would pursue that course of action but they follow the data. What kind of data would need to appear before the Fed makes a clinical decision to raise rates? >> Um we'd have to see some explosive payroll prints. >> Okay. Which is not going to happen this year probably. >> Uh not according to all the companies that continue to fire people. No. But that's what we'd have to have. We we'd have to have validation in addition to what's happening with headline um inflation, especially at a time when when JPAL's super core inflation, which we were following so closely a year ago, which reflects services inflation, you X out energy, you X out housing, that thing's falling like a rock. So, and again, it's indicative of the fact that you only have so much money in your paycheck. And if you have if if if you have to spend too much in one place and or you or your spouse are losing their job, guess what? You're spending less. Well, I I know that last year we talked about how the Fed has started to prioritize the labor market a little bit more. But this year has the Iran conflict shifted its priorities to focus more on inflation. In other words, even if the labor market remains weak, they would still consider a hawkish policy if the month-to-month CPR reading stays at, you know, near 1%. >> Yes, David. Yes. Until criminal charges against Jerome Hayden Powell are dropped, every Federal Reserve official in office today is going to hide behind whatever they can to justify staying in a hawkish stance and threatening to raise rates. Period. End. Will they use this as an excuse? Yes, they will. >> So, basically, the American people and ultimately the economy is going to is going to suffer because of political back and forth is what we're ultimately coming down to. >> Um, you you summed it up beautifully. >> Well, any tactical asset allocation strategies in a in a hawkish Fed environment for the next couple months. What would you say, Daniel? So, I mean, right now, the the yield curve should theoretically be about a 100 basis points steeper. In other words, short-term rates should be a heck of a lot lower. If the Fed is going to plow headlong into the magnitude of the policy error they are, they're going to be forced to play catchup. So to the extent that you want to be on the receiving end of that trade playing out when the Fed has to do a full 180 then the short end of the curve is the place to be. >> Okay. Um we have to talk about inflation hedging again and this is something that we haven't really discussed since basically 2021. If inflation were to persist, people are thinking about preserving wealth. What do we do? >> Well, it looks like precious metals have found their floor, doesn't it? And that's something that we discussed as being um maybe in its infancy after this big sell-off. Uh but it certainly looks like people are finding a hiding place whether they're concerned about a a credit event which is increasingly the odds are are increasing that that's going to happen because again we're still in a higher for longer regime. So whether you're talking about a credit event, the potential for financial crisis, a Fed error, or hedging for inflation, there's a really good place to hide, and that's precious metals. >> Okay. What about real estate? The 30-year fix rate has been rising for 5 weeks straight. It just eased yesterday down to 6.37%. Um are you concerned that of more hawkish Fed is going to put additional pressure on housing? you know, um that's certainly the potential, but I think that the that the slowdown in growth is going to put much more uh pressure on housing. When we got the University of Michigan confidence report out this morning, which was the lowest in the history of the of the survey that goes back decades and decades and decades >> inside of that, is it a good time to buy a house? Nope. That's collapsed. >> What What are consumers most concerned about now? Last year was a trade war. What is it now? >> Right now it's that their paychecks can't cover their their living expenses. That's and and that came out with right inside the data and we had almost the highest print about individuals being worried about losing their jobs, higher unemployment expectations printed at I think 68%. I these are David. These are not like flirting with recession level readings out of the University of Michigan. These are deep recessionary readings. You know, I heard that uh the White House needs to consider some sort of stimulus or quote unquote bribes to the American people before the midterm, right? Stimulus checks for tariffs uh or inflation relief checks, whatever, whatever you want to call it. >> Uh is that is can we expect that before November? >> Well, David, that means that the Congress of the United States, which is the least active Congress in the history of mankind, would actually have to do something. Um, and we have to remember that there's a razor thin margin in the House of Representatives. So, you'd have to have everybody on board in the Republican party in order to kind of throw a bone out there or, as you said, a bribe ahead of these midterms. It would have to be all the stars would have to align to get every single Republican vote to back this ahead of these elections. But, you know what? Something needs to be done or it's going to be a bloodbath in the midterms for the incumbents. So you've got the Cong Congress is facing the war in the Middle East as well as a weakening labor market. They have to do something to turn their, you know, low ratings around and also improve uh consumer sentiment. What should or what do you think Congress needs to do? I think Congress is going to want to hand out a check that makes a difference and a big check at that because one big beautiful bill was supposed to produce $1,000 more year-over-year in tax refunds. And by the way, it's only produced 350 more. It's been swallowed up at the gas pump. So, if they need to do something to keep their positions to stay elected, whatever that stimulus check is, David, it's going to have to be pretty damn big. >> You know, I I heard the um notion or the theory that if we have a um a Democrat win for the midterms, that might actually be bullish for markets. Uh if we have a a mixed house in Senate, what do you think? >> Well, I mean, gridlock is always friendly for markets. Um, but in the sense that that means that no laws are passed, we've kind of been in that situation now for as long as Congress has been in session. >> What's the next major data point or release that you're looking out for? >> The April payroll report. >> Okay. >> I mean, that that's it's a ways away, but from everything that we're seeing, um, that's going to be the biggie. >> Okay. Why why why is April in particular important for you? Well, again, we had a statistical seasonal adjustment anomaly create more than the number of headline payrolls. And we've seen so many negative prints in front of other months, especially with revisions in hand. We've seen 14 consecutive months of negative revisions, David, that the situation in the labor market is clearly deteriorating. And that's what the American households are telling us with higher unemployment expectations being in deeply recessionary territory. Maybe the Fed doesn't want to believe it. Maybe the Fed doesn't want to see it, but the American people will be seen in the labor market data. >> We talked about energy dividend stocks last time, like Chevron, for example, being a uh equity refuge. Uh do you still hold that view two weeks later? >> Uh yeah. Um the energy stocks have been a little bit up. Um, but do I think that that that a company like Chevron's dividend is safe? Yeah, I do. >> By the way, uh, going back to the Fed, myron, I believe, was alone to center at the Fed uh, March meeting. >> And, um, you know what? What is he seeing that the other governors are not? Or perhaps this is just purely political. >> You know what? Actually, I don't think what Myron is seeing is purely political. And it would shock me if he was not joined. And don't get me wrong, he is political, but it it it would shock me that if Christopher Waller, given the weakening in the labor market and given the shock to US household paychecks because of this oil supply shock, it would shock me if Waller did not descent at the April meeting. >> How much are inflation expectations a self-fulfilling prophecy? That's an economic theory. Have you observed that at all? If people think that inflation is going to go up, they're going to start buying things now. If businesses believe inflation is going to go up, they're going to want to price adjust to match their competitors now rather than later. Does that make sense? >> It it does. Except inflation expectations outside of energy are falling. >> Yeah. Why is that, by the way? That's very interesting. >> It's because purchasing power is being decimated. >> Okay. >> I mean, you can only pay for what you can spend. And yeah, >> if what you can spend is a hell of a lot less, David, then the prices for other things are gonna go down. If you were at the Fed and just take let's take take out labor market data for example. Okay, just for for the sake of this particular argument, you have a bunch of different inflation readings that you can use as your indicator for the next policy uh measure. You have true inflation which we talked about last time. Uh you have inflation expectations which you said are falling. You have core BCE which by the way didn't move at all >> since previous month. It's still flat. Um, and then you have headline CPI, which I know the Fed doesn't follow, but it spiked up dramatically because of oil. What should you what what would you be following if you were on the FOMC right now? >> So, right now, I would actually go go to Jay Powell's go-to indicator and that's Supercore inflation. >> Okay. >> And see how quickly services disinflation is taking hold because he actually chose Super Core a few years ago simply because the number falls. So the fact that it is falling is really indicative of the backdrop. >> What do you think the equilibrium fed funds rate should be this year? >> David, let me put it this way. I want for the Fed to stop lowering rates after they start to play catchup in a panic mode at 2%. >> Period. >> Okay. Okay. And that's going to be >> basis points lower than where they are this year. And again, at some point they're going to be caught so far off sides that they're going to be pushing through unusually large rate cuts. But you know what? Again, it may not happen this year because the White House does not seem to know how to get out of its own way to get Kevin Morris confirmed. If they could do at least that, at least we'd be on the path to easing at this point. >> Pal said something >> he is. >> Pal said something quite critical at the last FOMC meeting. I'm just jogging my own memory here. He said, a reporter asked him, you know, how you basing policy on oil. He said, in the past, oil price shocks due to geopolitical factors have been transitory. uh case in point Kuwait uh Gulf War case in point um 2007 but uh policy measures have a lag effect and so if they do something about it now um they might induce inflation next year or higher much higher inflation that that's his that's his per that's his point of view how would you evaluate that statement >> as being maybe naive >> okay >> at this point again the lack effects of hire for longer are still percolating in some of the highest bankruptcy filings that we've seen since the great financial crisis. So, um if he if he needs to see evidence of lag effects, he can see evidence of higher for longer lag effects staring him in the face right now. >> What would need to happen? Final question. What would need to happen to turn labor market weakness around this year? >> Perhaps leadership in the American government that embraced capitalism um in its fullest form. And >> what does that mean? What is that? That actually means that an honest day's work gets an honest day's pay and that fiscal and monetary policy are not solely made for the top 1%. That'd be a good starting place, David. >> So, practically, so lower taxes, is that is that what we're talking about? Is that how does that how do we make this more capitalistic? Yeah, >> certainly lower taxes for working people >> would be a good idea. And >> yeah, >> the idea of raising taxes. And don't get me wrong, I'm a card carrying like the most conservative person you'll ever meet. >> Yeah, >> we're clearly not bringing enough in with all the loopholes that exist in corporate taxes and in taxes from the wealthiest. And that's way >> that's just a fact. I mean, that that's what keeps CPAs in business is loopholes after loopholes after loopholes. >> Right. Okay. That Okay, but put it this way. If the Iran conflict ends today and the Straight of Hormuz opens today, would your outlook change? Would you be more optimistic at all? >> No, because all of the data that we've been discussing is through February. >> Yeah, makes sense. >> Personal consumption was slowing dramatically through February. We don't have the March data in hand yet. So this what I'm saying David is the job losses all of this predates what happened in Iran. So stopping what's happening in Iran is not going to make very recent prior history disappear. >> Is is there any silver lining to the economy uh coming out of all this? Is there any any any any any glimmer of hope that you see? >> Um yeah I I think demographics are still on our side if you're in the healthcare industry. >> Okay perfect. I mean, as far as learning from this though, no. I mean, leadership in general needs to be more proactive if you're doing nothing and less impulsive if you're doing too much. That's about as diplomatic as I can be. >> Uh, well, we appreciate your cander. This is why we love having you back, Danielle. Tell us where we can learn more from you and follow your work. >> Love to have you. Um, as a daily feather reader, we publish every trading day of the year. dartinob.substack.com. And if you don't already follow me on social media, please do at D Martina Booth. >> Yes, we'll put the link down below. So, make sure to follow Qi Research and Danielle there. She's got a great uh Twitter or X, should I say, following as well. She posts interesting stuff every day. Thank you so much, Danielle. Good to see you again. And uh we'll speak again soon. Take care for now. >> Thank you. Take care. >> Thank you for watching. Don't forget to like and subscribe.
Why Fed Is About To Make ‘Biggest Policy Error In History’ | Danielle DiMartino Booth
Summary
Transcript
This is going to go down as one of the biggest policy errors in the history of the Federal Reserve. The Federal Reserve is going to ignore what's in staring them in the face. The idea that the Fed is going to hike rates in this environment is ludicrous. CPI data came out harder than expected today on the back of higher oil prices. And we had the Fed meeting minutes released as well. And uh it it looks like that several members of the FOMC have considered at the last meeting the possibility of raising interest rates. We'll talk about this and much more with Danielle D. Martino Boot, CEO of Qi Research. Welcome back Danielle. Good to see you again. >> Great to see you, David. Thanks for having me again. >> Headline CPI 3.3%, highest since May 2024. Core CPI at 2.6%. Not as much of an increase in the core side, X food and energy, but still higher than the previous month of 2.5%. But we'll get back to inflation in more detail in just a bit. Let's take a look at this statement from the minutes. Several participants indicated that they would have supported a two-sided description of the committee's future interest rate decisions, reflecting the possibility that upward adjustments to the target range for the federal fund federal funds rate could be appropriate if inflation remains at above target levels. If inflation remains at above target levels, that's exactly what we got today. Are we getting interest rates uh risen, in other words, hiked this year? Danielle, >> um you know, I I really cannot see any pathway to making that happen. I think this is more than anything else political posturing. Um we are seeing a very rapid slowdown in growth. Uh we had um very old and dated GDP data come in for the fourth quarter at 0.5%. Inside of that number was a 1.9% personal consumption expenditure number. With January and February data in hand for 2026 so far that 1.9% rate has gone down to a 0.6% rate and this is again January February before the hit from higher gasoline prices came. So David, we are seeing the US economy and hearing from some of my clients, hearing from other economists that sellside firms right now are actually throwing around the Rword, the recession word. Um, it's a pretty dramatic shift that we're seeing in sentiment. And the idea that the Fed is going to hike rates in this environment is ludicrous. >> Why were they even considering it then? >> Well, as I said, I think I I think more than anything else, it's political posturing. They're trying to present uh a very hawkish outward stance uh until these criminal charges against Jay Powell have been dropped. They still have not been. And we're now at the point where J Pal's theoretically only got another month as chair of the Fed. And yet we haven't even begun to talk about uh Kevin Worsh getting through the process of the the the vote in the committee to get him into a vote for a full confirmation. Why is that? Because the criminal charges against Jay Powell are still sitting there >> every day that goes by. I'm I'm convinced that J Pal's going to be at the podium for the rest of the year. David, >> that's not that's not what the White House said, Danielle. I'm not I'm not criticizing your opinion, but this just came in from Reuters yesterday. White House confident wors will lead in May. What is the source of this confidence, you think? >> Uh, you know, I have absolutely no idea because every time a headline like this hits, Senator Tom Tillis, who does not leave office until January the 3rd, 2027, reiterates the fact that until these criminal charges are dropped, the vote for worse is not going to go to committee. So, it's it's great to voice confidence. It's it's the job of someone like Kevin Hasset to voice confidence, but >> it doesn't matter if there's a brick wall that remains in front of getting Kevin Worsh even in the seat to be considered to be confirmed. >> And also remind us again, wasn't Worsh one of the more hawkish candidates um up for grabs? And so with inflation data now hotter because of oil, why would the White House confirm the most hawkish of their choices in a very inflationary environment? >> Well, first of all, the White House doesn't really have a choice here because Worsh has officially and formally been nominated to be the next chair. So, this is their man. They're standing by this person. Um, but more importantly, uh, you know, it's not just individuals at the Fed. It's not just PhD economists. Uh, anybody can tell you that this inflation shock, this supply shock is going to have a greater impact on growth going forward and it's going to slam growth, which as we just discussed is the Atlanta Fed GDP now forecast, they're usually way up there. It's at 1.3%. for the first quarter after a 0.5% and and we know that the layoffs Disney is the latest in the stream. We know that the layoffs just keep coming. I David, apologies to people who are worried about hot inflation, but if you're pouring all this money into your gas tank, you got a lot less money to spend on everything else. >> Yeah. And I think uh going back to uh the Fed's monetary policy, I think a lot of people looking at what's going on in the world right now are disappointed at the fact that the chances of a cut are now slim to nothing. Uh look at the CMA CM Fed watch tool. No chance of a cut by late April. In fact, we're not getting any chance until basically end of the year December meeting. And Danielle, you were on the show with me two weeks ago, about two weeks ago, saying that the Fed basically needs to act now. Small businesses depend on it. A lot of Americans depend on it. Corporate America depends on it. And now it's not looking like we're getting it. So what's going to happen to the economy? >> You know, David, this is going to go down as one of the biggest policy errors in the history of the Federal Reserve. The Federal Reserve is going to ignore what's staring them in the face and keep monetary policy overly tight into recession. The National Bureau of Economic Research follows very closely personal income after government transfers. That's got a recessionary reading. Right now, we have quite a few months of negative signs in front of payrolls. Uh granted, March March was strong, but you're in Vancouver, south of the border in the United States. It was the warmest march on record in the history of the United States. And somehow the Bureau of Labor Economics conjures up 79,000 jobs that were Americans who were out of work in March because of the cold weather. And then they dream up another 100,000 jobs that were created because of the birth death adjustment. So again, David, I think this is going to go down as a huge, huge policy error in the history of the Federal Reserve. >> Before we continue with the video, let's talk about your most important asset, your personal data and privacy. Now, your personal data is constantly being collected and sold and exposed online from places like shady data broker sites and even big data breaches. So, your private information, like your name, address, and phone number, is out there on the internet, and it's easier to find than you actually think. That's why I recommend today's sponsor, Delete Me. It takes a few minutes to set up, and they handle the entire process. They find where your information appears, verify those listings, and submit removal requests to hundreds of data broker websites. They also continue monitoring over time since this data can resurface and reappear. I've been using it for over a year and they have reviewed over 325 listings for my information. The reports show exactly what was found and what was removed which makes the process transparent. Check it out now. Scan the QR code on the screen or go to jointdeme.com/david link in the description down below and use my code davidin for 20% off. Take control of your privacy today. Now back to the video. What what what should they be doing? Forget policy error. What is the correct policy? >> The correct policy right now is to say American households, small businesses, you are being absolutely gig workers, Uber workers, lift workers, you're being slammed slammed by higher gas prices and you're looking at wage disinflation and layoffs keep rising. You know what? We're going to be honest with you and say we're we're going to stand with you. Rate cuts might not do very much in this environment. They might not. But it's a heck of a lot more genuous as opposed to disingenuous to at least publicly side with working men and working women instead of just ignoring them because of what's going on in politics. >> And we have to we have to also uh bear in mind that uh you know there are several causes of inflation. It's yes oil has gone up. Um yes people are concerned about prices at the pump. But let's break this down here. Look, Danielle, this is the uh total assets of the Fed balance sheet here, and that's been going up. To what extent has a higher CPI print uh been due just to oil versus an expanding balance sheet here? Well, David, if you look back at the full history of quantitative easing until the Fed actually monetized federal spending, which was in the post-pandemic era, the Fed could not get inflation up to its 2% target. So, money printing alone has never worked. It's not going to start working anytime soon either. Right now, the Fed's just trying to make sure that there's enough liquidity in the system because this private credit situation will not go away. So, the threat is a lack of liquidity, which by the way is highly deflationary. >> So, let's suppose the Fed doesn't do anything. They they don't change rates. Uh they keep it unchanged. Uh where do you see the 10-year yield headed then? >> Well, you know, it's it's interesting. We I I think you can agree we've had a rather dramatic week in the markets and yet the 10-year Treasury yield has fallen from 4.35% to 4.31%. Looking just through the prism of yields, a lot of nothing has taken place this week. We've just seen yields come down a bit. Um the fact that yields are not going up, however, tells you how much they're disregarding this inflationary threat and paying heed to this threat of a growth shock. >> Uh I don't recall uh Powell using the word transitory a lot, but this is a uh this is a CPI chart that CNBC put together. Good visual here. Monthtomonth, the biggest increase since 2022. We know what happened in 2022. The Fed raised rates and everything crashed. My question is Danielle um what will trigger a hike? You said that it's you know unfathomable that they would pursue that course of action but they follow the data. What kind of data would need to appear before the Fed makes a clinical decision to raise rates? >> Um we'd have to see some explosive payroll prints. >> Okay. Which is not going to happen this year probably. >> Uh not according to all the companies that continue to fire people. No. But that's what we'd have to have. We we'd have to have validation in addition to what's happening with headline um inflation, especially at a time when when JPAL's super core inflation, which we were following so closely a year ago, which reflects services inflation, you X out energy, you X out housing, that thing's falling like a rock. So, and again, it's indicative of the fact that you only have so much money in your paycheck. And if you have if if if you have to spend too much in one place and or you or your spouse are losing their job, guess what? You're spending less. Well, I I know that last year we talked about how the Fed has started to prioritize the labor market a little bit more. But this year has the Iran conflict shifted its priorities to focus more on inflation. In other words, even if the labor market remains weak, they would still consider a hawkish policy if the month-to-month CPR reading stays at, you know, near 1%. >> Yes, David. Yes. Until criminal charges against Jerome Hayden Powell are dropped, every Federal Reserve official in office today is going to hide behind whatever they can to justify staying in a hawkish stance and threatening to raise rates. Period. End. Will they use this as an excuse? Yes, they will. >> So, basically, the American people and ultimately the economy is going to is going to suffer because of political back and forth is what we're ultimately coming down to. >> Um, you you summed it up beautifully. >> Well, any tactical asset allocation strategies in a in a hawkish Fed environment for the next couple months. What would you say, Daniel? So, I mean, right now, the the yield curve should theoretically be about a 100 basis points steeper. In other words, short-term rates should be a heck of a lot lower. If the Fed is going to plow headlong into the magnitude of the policy error they are, they're going to be forced to play catchup. So to the extent that you want to be on the receiving end of that trade playing out when the Fed has to do a full 180 then the short end of the curve is the place to be. >> Okay. Um we have to talk about inflation hedging again and this is something that we haven't really discussed since basically 2021. If inflation were to persist, people are thinking about preserving wealth. What do we do? >> Well, it looks like precious metals have found their floor, doesn't it? And that's something that we discussed as being um maybe in its infancy after this big sell-off. Uh but it certainly looks like people are finding a hiding place whether they're concerned about a a credit event which is increasingly the odds are are increasing that that's going to happen because again we're still in a higher for longer regime. So whether you're talking about a credit event, the potential for financial crisis, a Fed error, or hedging for inflation, there's a really good place to hide, and that's precious metals. >> Okay. What about real estate? The 30-year fix rate has been rising for 5 weeks straight. It just eased yesterday down to 6.37%. Um are you concerned that of more hawkish Fed is going to put additional pressure on housing? you know, um that's certainly the potential, but I think that the that the slowdown in growth is going to put much more uh pressure on housing. When we got the University of Michigan confidence report out this morning, which was the lowest in the history of the of the survey that goes back decades and decades and decades >> inside of that, is it a good time to buy a house? Nope. That's collapsed. >> What What are consumers most concerned about now? Last year was a trade war. What is it now? >> Right now it's that their paychecks can't cover their their living expenses. That's and and that came out with right inside the data and we had almost the highest print about individuals being worried about losing their jobs, higher unemployment expectations printed at I think 68%. I these are David. These are not like flirting with recession level readings out of the University of Michigan. These are deep recessionary readings. You know, I heard that uh the White House needs to consider some sort of stimulus or quote unquote bribes to the American people before the midterm, right? Stimulus checks for tariffs uh or inflation relief checks, whatever, whatever you want to call it. >> Uh is that is can we expect that before November? >> Well, David, that means that the Congress of the United States, which is the least active Congress in the history of mankind, would actually have to do something. Um, and we have to remember that there's a razor thin margin in the House of Representatives. So, you'd have to have everybody on board in the Republican party in order to kind of throw a bone out there or, as you said, a bribe ahead of these midterms. It would have to be all the stars would have to align to get every single Republican vote to back this ahead of these elections. But, you know what? Something needs to be done or it's going to be a bloodbath in the midterms for the incumbents. So you've got the Cong Congress is facing the war in the Middle East as well as a weakening labor market. They have to do something to turn their, you know, low ratings around and also improve uh consumer sentiment. What should or what do you think Congress needs to do? I think Congress is going to want to hand out a check that makes a difference and a big check at that because one big beautiful bill was supposed to produce $1,000 more year-over-year in tax refunds. And by the way, it's only produced 350 more. It's been swallowed up at the gas pump. So, if they need to do something to keep their positions to stay elected, whatever that stimulus check is, David, it's going to have to be pretty damn big. >> You know, I I heard the um notion or the theory that if we have a um a Democrat win for the midterms, that might actually be bullish for markets. Uh if we have a a mixed house in Senate, what do you think? >> Well, I mean, gridlock is always friendly for markets. Um, but in the sense that that means that no laws are passed, we've kind of been in that situation now for as long as Congress has been in session. >> What's the next major data point or release that you're looking out for? >> The April payroll report. >> Okay. >> I mean, that that's it's a ways away, but from everything that we're seeing, um, that's going to be the biggie. >> Okay. Why why why is April in particular important for you? Well, again, we had a statistical seasonal adjustment anomaly create more than the number of headline payrolls. And we've seen so many negative prints in front of other months, especially with revisions in hand. We've seen 14 consecutive months of negative revisions, David, that the situation in the labor market is clearly deteriorating. And that's what the American households are telling us with higher unemployment expectations being in deeply recessionary territory. Maybe the Fed doesn't want to believe it. Maybe the Fed doesn't want to see it, but the American people will be seen in the labor market data. >> We talked about energy dividend stocks last time, like Chevron, for example, being a uh equity refuge. Uh do you still hold that view two weeks later? >> Uh yeah. Um the energy stocks have been a little bit up. Um, but do I think that that that a company like Chevron's dividend is safe? Yeah, I do. >> By the way, uh, going back to the Fed, myron, I believe, was alone to center at the Fed uh, March meeting. >> And, um, you know what? What is he seeing that the other governors are not? Or perhaps this is just purely political. >> You know what? Actually, I don't think what Myron is seeing is purely political. And it would shock me if he was not joined. And don't get me wrong, he is political, but it it it would shock me that if Christopher Waller, given the weakening in the labor market and given the shock to US household paychecks because of this oil supply shock, it would shock me if Waller did not descent at the April meeting. >> How much are inflation expectations a self-fulfilling prophecy? That's an economic theory. Have you observed that at all? If people think that inflation is going to go up, they're going to start buying things now. If businesses believe inflation is going to go up, they're going to want to price adjust to match their competitors now rather than later. Does that make sense? >> It it does. Except inflation expectations outside of energy are falling. >> Yeah. Why is that, by the way? That's very interesting. >> It's because purchasing power is being decimated. >> Okay. >> I mean, you can only pay for what you can spend. And yeah, >> if what you can spend is a hell of a lot less, David, then the prices for other things are gonna go down. If you were at the Fed and just take let's take take out labor market data for example. Okay, just for for the sake of this particular argument, you have a bunch of different inflation readings that you can use as your indicator for the next policy uh measure. You have true inflation which we talked about last time. Uh you have inflation expectations which you said are falling. You have core BCE which by the way didn't move at all >> since previous month. It's still flat. Um, and then you have headline CPI, which I know the Fed doesn't follow, but it spiked up dramatically because of oil. What should you what what would you be following if you were on the FOMC right now? >> So, right now, I would actually go go to Jay Powell's go-to indicator and that's Supercore inflation. >> Okay. >> And see how quickly services disinflation is taking hold because he actually chose Super Core a few years ago simply because the number falls. So the fact that it is falling is really indicative of the backdrop. >> What do you think the equilibrium fed funds rate should be this year? >> David, let me put it this way. I want for the Fed to stop lowering rates after they start to play catchup in a panic mode at 2%. >> Period. >> Okay. Okay. And that's going to be >> basis points lower than where they are this year. And again, at some point they're going to be caught so far off sides that they're going to be pushing through unusually large rate cuts. But you know what? Again, it may not happen this year because the White House does not seem to know how to get out of its own way to get Kevin Morris confirmed. If they could do at least that, at least we'd be on the path to easing at this point. >> Pal said something >> he is. >> Pal said something quite critical at the last FOMC meeting. I'm just jogging my own memory here. He said, a reporter asked him, you know, how you basing policy on oil. He said, in the past, oil price shocks due to geopolitical factors have been transitory. uh case in point Kuwait uh Gulf War case in point um 2007 but uh policy measures have a lag effect and so if they do something about it now um they might induce inflation next year or higher much higher inflation that that's his that's his per that's his point of view how would you evaluate that statement >> as being maybe naive >> okay >> at this point again the lack effects of hire for longer are still percolating in some of the highest bankruptcy filings that we've seen since the great financial crisis. So, um if he if he needs to see evidence of lag effects, he can see evidence of higher for longer lag effects staring him in the face right now. >> What would need to happen? Final question. What would need to happen to turn labor market weakness around this year? >> Perhaps leadership in the American government that embraced capitalism um in its fullest form. And >> what does that mean? What is that? That actually means that an honest day's work gets an honest day's pay and that fiscal and monetary policy are not solely made for the top 1%. That'd be a good starting place, David. >> So, practically, so lower taxes, is that is that what we're talking about? Is that how does that how do we make this more capitalistic? Yeah, >> certainly lower taxes for working people >> would be a good idea. And >> yeah, >> the idea of raising taxes. And don't get me wrong, I'm a card carrying like the most conservative person you'll ever meet. >> Yeah, >> we're clearly not bringing enough in with all the loopholes that exist in corporate taxes and in taxes from the wealthiest. And that's way >> that's just a fact. I mean, that that's what keeps CPAs in business is loopholes after loopholes after loopholes. >> Right. Okay. That Okay, but put it this way. If the Iran conflict ends today and the Straight of Hormuz opens today, would your outlook change? Would you be more optimistic at all? >> No, because all of the data that we've been discussing is through February. >> Yeah, makes sense. >> Personal consumption was slowing dramatically through February. We don't have the March data in hand yet. So this what I'm saying David is the job losses all of this predates what happened in Iran. So stopping what's happening in Iran is not going to make very recent prior history disappear. >> Is is there any silver lining to the economy uh coming out of all this? Is there any any any any any glimmer of hope that you see? >> Um yeah I I think demographics are still on our side if you're in the healthcare industry. >> Okay perfect. I mean, as far as learning from this though, no. I mean, leadership in general needs to be more proactive if you're doing nothing and less impulsive if you're doing too much. That's about as diplomatic as I can be. >> Uh, well, we appreciate your cander. This is why we love having you back, Danielle. Tell us where we can learn more from you and follow your work. >> Love to have you. Um, as a daily feather reader, we publish every trading day of the year. dartinob.substack.com. And if you don't already follow me on social media, please do at D Martina Booth. >> Yes, we'll put the link down below. So, make sure to follow Qi Research and Danielle there. She's got a great uh Twitter or X, should I say, following as well. She posts interesting stuff every day. Thank you so much, Danielle. Good to see you again. And uh we'll speak again soon. Take care for now. >> Thank you. Take care. >> Thank you for watching. Don't forget to like and subscribe.