Thoughts on the Fed decision a day later
After some time to reflect on the FOMC decision, what stands out his how comprehensively and completely Powell folded.
A shift to something more dovish was warranted but he completely threw in the towel. All the talk of transitory pressure pushing inflation lower was abandoned. He didn't even put up any token resistance and basically conceded that all roads lead to a July cut. he didn't even flinch at a suggestion from a reporter about a 50 basis point cut.
I thought he would outline a path where if the trade war escalated that the Fed would act. Instead, he basically promised to act no matter what. There's no way to walk back a July cut now, even with stock markets hitting all-time highs.
The takeaway now isn't just that a July cut is coming, or that two cuts are coming before year end. It's that Powell is a pushover and will do whatever Trump and markets want. The Powell put is on and it's undeniable.
So how does it end?
We're back to the cheap money era and stock markets love it. Companies and consumers will pile on more debt and the party will go on for a few more years. It will eventually end badly but it won't end soon.
The worst thing to happen would be a recession but I just don't see it. US unemployment is at all-time lows and companies love to borrow at cheap rates. The US government is running a gigantic fiscal deficit.
The flipside is that this could all embolden Trump to do something foolish on China.