The Fed’s been doing its job (now do yours)

Friday Finance

So began the week. And this is how it continued:

“I’m taking on China…and we’re winning big” is not a coherent policy. However, it certainly is vague. We don’t really expect an entire economy with billions (Trump’s favorite numerical bracket) of moving parts to be able to plan and execute around such proclamations, do we? Or interest rate cuts of a full percentage point to have their intended effect, when we don’t know what the intended effect is, or even whether there’s a strategy besides going on a rant?

How many times have we gone back and forth on Huawei? How often have we debated whether AAPL’s business dealings with China are safe or not? How many instances have their been now of threatening, scheduling, removing, tweaking, exempting, and delaying tariffs?

It used to be that if the Federal Reserve wasn’t careful enough with the language of some public statement or other, market participants of all stripes would have conniptions, anguishing over single words. In today’s environment, it’s no wonder that markets are experiencing negative-to-positive swings on an order of magnitude of a severe disassociative identity disorder. At this point, Jerome Powell could come out and talk about how much he enjoyed his steak dinner at the resort in Jackson Hole (where the world’s central bankers have been meeting this week), and many folks might thank him just for making some sense and bringing it all back to earth.

JPOW. How ‘bout that Fed. Crapped on, on what feels like a daily basis. Never mind that under three separate chairpersons, they’ve steered us away from devastating economic realities, from the dire consequences of horrendous fiscal malfeasance and terrible behavior on the parts of nearly everyone in the chain. They went to incredible lengths to put Humpty Dumpty back together again, analyzing, engineering, innovating, collaborating, and corralling on the fly, and were then tasked with preserving it all, only to be harassed today about “interest rates”.

But of course. Real estate people love low interest rates, as those deals are financed with debt. And Trump “knows a thing or two about buying real-estate”, a seemingly inebriated Larry Kudlow told Fox News Sunday during a morning interview last weekend. He even snickered about the deal to buy Greenland, saying, “Well maybe I’ll run the central bank.” Maybe he’s laughing because he knows he couldn’t hack it.

Meanwhile, that dual mandate the Fed adheres to—that consistent game plan—has been looking pretty fulfilled as of late.

The monetary policy goals of the Federal Reserve are to foster economic conditions that achieve both stable prices and maximum sustainable employment.

3.7% unemployment, a level we haven’t broken below since 1969. Core inflation at 2.2%, annual inflation at 1.8%, and the UIG is estimating trend CPI inflation to fall within the 1.9% to 2.6% range. What are we lowering rates by large amounts for, again? In order to see if the Stagflation Monster really does exist? Or to compensate for something? Cuts won’t make up for souring trade relations and diplomatic ties abroad, and a divided populace at home.

At this point, calling the Fed out for not lowering rates further is the height of projection and deflection. We are close to a consensus that the White House’s biggest economic salvo thus far—the tax cuts—did not have the impact they were designed for, unless the idea was to hollowly boost corporate profits on paper, promote stock buybacks and dividend increases, and justify enlarged boardroom salaries. They may have even been damaging to the economy. Besides, no government budget cuts could make up for the loss of that kind of revenue. At the same time, the only party that has done anything concrete with respect to the simmering trade war with China is, well, China, by allowing its currency to weaken and instructing its companies to reject imports of American goods, all as it threatens tariffs itself.

Instead of discussing actual results, or the consequences of its current course of (in)action as it drives a wedge of uncertainty between us and further economic good times, the current administration continues to just blame somebody else. It’s distracting, and it can be catchy. Besides, everybody loves to hate on the Fed. And the stock markets, already inflated, want nothing more than ever lower rates to fuel additional share repurchase agreements with cheap corporate debt, and margin trading.

As the slashing of the corporate tax rate demonstrated, the availability of easy money doesn’t automatically lead to a wise use of funds and laudable investment decisions. Myopically lowering interest rates simply promises more of the same, that primarily being a further inflating of equities markets.

So we know you’ll have at it, mango. But at least over there at the Fed, they always look to be doing their jobs. The numbers are in their favor. What exactly is your erratic, protectionist socioeconomic policy track record as of today? That the DOW went up some more since you took office? I hear slow clapping off in the distance somewhere. By the way, that’s been looking pretty tenuous, of late.

Who is our bigger enemy, you’ve asked?

Neither of them. Right now, it appears to be you.