re: Trump vs Powell. It’s On!

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I don't know if he's playing politics or just not very good at what he does. But the Fed in a highly restrictive monetary posture at this point is just stupid.

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Setting aside the likelihood that he is playing politics, I think the issue for the Fed is they're working with a tool that just isn't very old and whose effects don't have the long term run behind it, referring to Quantitative Easing and Tightening.

QE = Fed buying securities to introduce more liquidity (money) into the system, because they and the Treasury create the money to make the purchases.

QT = Fed either selling those held securities to soak up excess liquidity in the system, or not replacing matured securities with new purchases over time by reinvesting the proceeds from said matured securities.

Inflation is mostly a product of money supply if there isn't a corresponding increase in output. Money supply skyrocketed over the course of the COVID responses and output did not move up with it. The Fed's response was to both raise rates, AND engage in QT to combat inflation. Similarly during the second half of Trump's 1st term (pre 2020) the Fed engaged in the double whammy of raising rates and ending QE to instead QT.

Both rates and QT are inflationary controls available to the Fed. The problem is since QE/QTs existence (in 2008) they've almost always been used in conjunction as either brakes or gas. The option to lower rates while engaging in QT as a way to encourage growth (lower rates) while controlling inflation (stabilizing the money supply through QT soak) seems to have gone completely unnoticed by the Fed.

Again, money supply increases without corresponding raises in output is the biggest driver of inflation. The Fed has the ability to regulate inflation while promoting growth with their dual levers of control. They just don't seem to be able to recognize that.

Now whether that's a politics/stubbornness issue, or just the Feds lack of long term experience with a tool like QE and QT, who knows.

I will say J Pow has been maybe the most vocal about a data based approach, but all of the Feds data is backwards looking (and subject to revisions) meaning when you go data only approach, you will always be reactive instead of anticipating.

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Extremely conservative and I agree.

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So you are pro loss of jobs and recession. Got it.

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So you are pro loss of jobs and recession. Got it.

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Imagine thinking the only way through is with Trumps help

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So you are pro loss of jobs and recession. Got it.

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It has to happen. We just keep kicking the can down the road, like the saints and their cap situation. But politics keep getting in the way. Nobody wants to be the president when the financial bandaid gets ripped off.

Trump has no intentions to fire Powell.

He just wants rates down.

Media running stoopid stories