I commend you for actually publishing data on what businesses will do with prices in the event of Trump tariffs. The Fed will eventually have to reduce interest rates based upon a likelihood of recession, the outcome of tariffs. It can't do anything about inflation or tariffs only investment risk. Lower rates lower risk. However the recession in this case has a greater risk of becoming something worse. That is because US deficits and balance of payments problems are behind the tariff moves. In other words we have a reserve currency dollar crisis looming.
I think the fed will eventually cut rates which won't be enough to spur growth if the economy slows but these are truly some wild and unpredictable times we're living in right now. The likelihood of a recession looming and nobody knows for sure how these tariff negotiations will go especially the US and China. The markets are up on the news alone that the two sides are at least talking. We'll see what happens.
So far, Powell has been unbothered by Trump’s complaints about him moving too slowly, is there a situation in which that changes? I believe he will hold the line but wonder what happens when his term ends or if they find a way to remove him before then.
I think Powell will remain steady through the end of his term - whenever and however that occurs. What happens after that is up in the air, like everything this "administration" touches.
I do not know how you ascertain the right policy to have when the presidential environment created by Trump as fearless or futile leader perspective changes from day to day. Why change when the environment changes in knee=jerk reactions.
Of course, Powell will be blamed the same as he will be blamed if he reacts to soon. I do not sense we are in any urge need of a change. I am late to this Sahm commentary. A good sign was inflation came in 1 tenth of 1 percent lower.
It is a wait and see game for the Fed. The activity will be with the presidency for now.
Part of the Fed's job is to making a current assessment, but they should also be brave enough to have a forward looking one, givin the well-known lags to policy. They also have a requirement to tick off the risk management box. It is debateable what the policy lags are and even if the short rate is only an imperfect way to impact borrowing costs which have a duration and credit component. But given the forward looking survey data, which is pretty terrible, and nonwitstanding the obvious derating of it by most these days, I would have to agree that the Fed is making a mistake and is so handicapped by thier transitory mistake that they are deer in the headlights.
Does anyone believe there is "potential tension in the dual mandate” from the Fed's POV? All the Fed cares about is protecting the assets of the kleptocrats and their ring kissers.
I note that the Dallas Fed asks about employment but doesn’t ask about wage increases. Something has to give… I wonder how accurate the soft data is on business behavior. I can’t see small businesses being able to eat cost increases for very long. And I don’t see big businesses doing anything less than full pass throughs or more, as they did during COVID.
Just a question, in Sunday’s NYT Jason Furman says the following:
“Furman: The best thing for the Fed over the next few months is to be behind the curve, because the alternative is to risk being ahead of the wrong curve.”
My comment, for what that's worth, is that the entire premise of being "ahead" or "behind" is misleading, since the Fed SETS policy. The whole narrative/dialogue around this is kind of barren.
Thank you for a very informative post. It's hard to know what is coming and this kind of info helps.
Thanks for your blog! I used this (and previous) with my AP Macroeconomics class.
I commend you for actually publishing data on what businesses will do with prices in the event of Trump tariffs. The Fed will eventually have to reduce interest rates based upon a likelihood of recession, the outcome of tariffs. It can't do anything about inflation or tariffs only investment risk. Lower rates lower risk. However the recession in this case has a greater risk of becoming something worse. That is because US deficits and balance of payments problems are behind the tariff moves. In other words we have a reserve currency dollar crisis looming.
With this "administration", uncertainty rules the day, no matter what the Fed does or doesn't do. We're on a big, not so beautiful, roller coaster.
I think the fed will eventually cut rates which won't be enough to spur growth if the economy slows but these are truly some wild and unpredictable times we're living in right now. The likelihood of a recession looming and nobody knows for sure how these tariff negotiations will go especially the US and China. The markets are up on the news alone that the two sides are at least talking. We'll see what happens.
So far, Powell has been unbothered by Trump’s complaints about him moving too slowly, is there a situation in which that changes? I believe he will hold the line but wonder what happens when his term ends or if they find a way to remove him before then.
I think Powell will remain steady through the end of his term - whenever and however that occurs. What happens after that is up in the air, like everything this "administration" touches.
I do not know how you ascertain the right policy to have when the presidential environment created by Trump as fearless or futile leader perspective changes from day to day. Why change when the environment changes in knee=jerk reactions.
Of course, Powell will be blamed the same as he will be blamed if he reacts to soon. I do not sense we are in any urge need of a change. I am late to this Sahm commentary. A good sign was inflation came in 1 tenth of 1 percent lower.
It is a wait and see game for the Fed. The activity will be with the presidency for now.
Part of the Fed's job is to making a current assessment, but they should also be brave enough to have a forward looking one, givin the well-known lags to policy. They also have a requirement to tick off the risk management box. It is debateable what the policy lags are and even if the short rate is only an imperfect way to impact borrowing costs which have a duration and credit component. But given the forward looking survey data, which is pretty terrible, and nonwitstanding the obvious derating of it by most these days, I would have to agree that the Fed is making a mistake and is so handicapped by thier transitory mistake that they are deer in the headlights.
Does anyone believe there is "potential tension in the dual mandate” from the Fed's POV? All the Fed cares about is protecting the assets of the kleptocrats and their ring kissers.
tnk
https://www.zerohedge.com/markets/watch-live-fed-chair-powell-explains-why-its-different-now-vs-september
Sept 2024: weak soft data, tight financial conditions, August market crash, cut rates by 50bps
Nov 2025 Election
May 2025: weak soft data, tight financial conditions, April market crash, pause
I note that the Dallas Fed asks about employment but doesn’t ask about wage increases. Something has to give… I wonder how accurate the soft data is on business behavior. I can’t see small businesses being able to eat cost increases for very long. And I don’t see big businesses doing anything less than full pass throughs or more, as they did during COVID.
Just a question, in Sunday’s NYT Jason Furman says the following:
“Furman: The best thing for the Fed over the next few months is to be behind the curve, because the alternative is to risk being ahead of the wrong curve.”
Could you comment on this?
My comment, for what that's worth, is that the entire premise of being "ahead" or "behind" is misleading, since the Fed SETS policy. The whole narrative/dialogue around this is kind of barren.