Well, well well. Almost right on time.
It looks like the inevitable phone call from the White House to Fed Chair J. Powell did indeed get answered. What was the conversation? Short and not so sweet; cut rates or pack up your belongings. Click. The Chairman got the message and interest rates will be cut in September.
We touched base on this a couple of times the past few months in prior columns and by golly it actually happened. Not even the Chairman of The Federal Reserve is immune from politics. Especially election year politics. Interest rates will be eased before the election.
But how to make it look like its not political? The Fed has to have some cover. How about having the labor department turn themselves in and report what everyone (well, at least most) already knew; the employment numbers were overstated for over a year. They were just revised DOWN by about 820,000. Perfect timing to ease interest rates.
Now how about inflation. How can the Fed declare “victory” of conquering inflation right before an election? Well, first rather than admit inflation is still 2.5%, plus or minus, and above their target, lets just “tweak” a few numbers in the Fed’s favorite inflation gauge the PCE (Personal Consumption Expenditures). No food or energy of course. Even if they did include food they can just replace steak with spam. Magic, inflation goes down.
So, nothing political going on here. The numbers (which you should NEVER believe) tell the Fed it’s just a good time to ease rates. Two months before an election. What a coincidence. Anyway, no need to wait any longer. The Fed beat inflation? It’s like driving the football down the field, getting to the 5 yard line and rather than going for the goal line just say close enough. We win.
Fed Chair Powell punted. He doesn’t want to give up the big office, the annual trip to Jackson Hole, the global meetings, the big jet or any of the power perks. Just cut rates. Politics at play here. Besides, where would an ‘older’ former Fed Chairman go for a job? Walmart greeter?
