On April 17th, Trump posted on Truth Social that “Powell’s termination cannot come fast enough!”
Trump wasn’t done. A week later, “There can be a slowing of the economy unless Mr. Too Late, a major loser, lowers interest rates, NOW,” Trump wrote. The President of the United States just called the Fed Chair that he appointed a “major loser”. While markets were puking at the threat of Fed independence, I got a LinkedIn notification…
Trump wasn’t done. A week later, “There can be a slowing of the economy unless Mr. Too Late, a major loser, lowers interest rates, NOW,” Trump wrote. The President of the United States just called the Fed Chair that he appointed a “major loser”. While markets were puking at the threat of Fed independence, I got a LinkedIn notification…
Her comments helped push rates down across the curve. Markets are now pricing in a 63% probability of at least one cut by the end June. Never mind that just the day before Trump’s demanded Powell lower rates, Hammack had said, “With both sides of our mandate expected to be under pressure, there is a strong case to hold monetary policy steady.”
But Trump still wasn’t done. On Tuesday, he told reporters in the Oval Office, "I have no intention of firing him.” We went from a Weekend at Bernie’s president to a weekly reality show president.
As a friendly reminder, when Trump appointed Powell he said, "I am confident that Jay has the wisdom and leadership to guide our economy through any challenges.”
As we approach the 100 day mark of Trump 2.0, I have to assume Powell isn’t the only one on the chopping block. Hegseth? Navarro? You know who has been awfully quiet recently…
Last Week This Morning
- 10T: 4.23%
- 2T: 3.75%
- SOFR: 4.31%
- Term SOFR: 4.32%
- Cap prices dropped about 10% after Trump’s reversal on Powell, but then retraced by Friday
- Thank you to the Giants for drafting another Penn State superstar the Eagles can sign away in five years
This Week is a Doozy
Inflation, GDP, and jobs…yowza. See if you can detect a pattern…
Absent tariffs, that monthly Core PCE would be incredibly supportive of more cuts. For now, Powell will treat it like a helpful head start ahead of the inflation spike. But even if he believes the economy is cooling rapidly he can’t ease off the brakes any more until he’s on the far side of inflation fears.
The divergence between sentiment and reality continues to widen. I don’t think economic reality is nearly as bad as the Michigan survey suggests – the second lowest reading on record. Unemployment hit 10% in the GFC and didn’t fall below 6% until a year after covid hit…yet sentiment is worse today? The worst on record was when inflation was peaking…and unemployment was 3.6%.
But I also have to think the longer the Uncertainty Bends™ carries on, the more likely sentiment becomes reality. If we reach a deal with China, it’s because it’s a good deal for China. Xi is willing to let his people endure years of suffering to win, whereas Trump has already blinked twice.
Trump will figure out a way to spin any outcomes as a success, but if he doesn’t figure out a sensible policy soon I might be getting one more LinkedIn notification…
Rates
The Fed is steeling for an inflation spike and hoping it’s transitory temporary, but I believe the labor market holds the keys to future Fed moves. Everyone’s an inflation tough guy until people start losing jobs.
The labor market signals are flashing yellow. NFP has halved. Quits are the lowest in a decade. Challenger Layoff Announcements are back at levels we saw when the Fed started hiking.
From the Department of Beating a Dead Horse, if we used the participation rate from February 2020 the Unemployment Rate today would be 5.5%. Even if covid permanently altered the structure of the labor market, it still suggests 4% is the new 5%. The Fed is starting with far less cushion than it thinks. I continue to believe the Fed will cut at least 0.75% this year, but it will be backend loaded.
The only people as quiet as Elon over the last week are the ones that said twin deficits were causing the T10 to spike and the death of the USD as the world’s reserve currency was imminent (it was a basis trade unwind)
I think this is the collective face of everyone surprised to watch the T10 fall back below 4.25% after crying the world was ending.
JK, that’s Jags GM James Gladstone who mortgaged the future to draft two-way star Travis Hunter (Jimmy will probably need that profile pic in a couple of years). Hunter looks like he brought his best friend from elementary school with him to the press conference.
Anyway, there are no viable alternatives to the US Treasury and dollar so please stop screaming the end is nigh. The T10 may spike again, but it won’t be because the US isn’t the world’s mattress any more.
The Week Ahead
What a doozy, buckle up.
One last LinkedIn profile pic from the guy that was so sure Howie Roseman couldn’t draft that he took the time to make a website (https://howiecantdraft.com)...
Also, in case anyone is listening…if appointed Fed Chair, I promise to cut rates 1.5% on my first day…
