Fed Dissent Adds to Abnormal Air of Trump, Powell Standoff
A surprising result for the dissent following the FOMC's latest meeting suggests the Fed could be circling its wagons.
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Most market practitioners were focused on how many dissents there would be at Wednesday's FOMC meeting.
There were two, with Waller and Bowman dissenting. “Normally,” two dissenters would be a big deal. It is not common to have two dissenting votes, both in the same direction (last time this happened was in 1993). But this is not a “normal” environment for the Fed. The president is very focused and outwardly critical of the Fed Chair. There were some thoughts that three or more dissents could occur. That did not happen. While two dissents isn’t quite “circling the wagon” around Powell in a show of support, it is pretty darn close, given the cacophony surrounding their decisions.
The press conference was quite hawkish. Powell seemed to drive home the message that “tariffs are slow moving in terms of inflation, but inflationary nonetheless.” That aligns with my view, that it takes months, maybe even quarters before the inflation effects hit. I spoke about this on Bloomberg TV on Tuesday morning. It won’t be until the majority of a company’s inventory has faced tariffs, and the company has settled with exporters on concessions, that we will see more meaningful pass through. There is a chance it doesn’t occur, but my expectation is that tariffs will create stubborn pressure on inflation limiting the ability for inflation to reach the Fed’s targets.
On the other hand, I’m not sure why the Fed is so comfortable with the job market. The NFP data on Friday will be a big deal. Maybe it will continue to surprise to the upside and defy other metrics (like ADP, which has had a total of 170,000 jobs over four months, or JOLTS "quit" rate, which is very low at 2%). I like the quit rate as I view it as a “crowdsourced” metric, where individuals know how easy or difficult it is to get a job and a low quit rate tells me jobs are not easy to find (particularly true, it seems, for recent college grads, which is concerning and likely attributable, at least in part, to AI).
But it was META and MSFT that set the tone for a strong overnight session and opening on Thursday.
The AI story remains intact (though I’m not sure how many times we can add to the rally on headlines that, it seems to me, should almost be expected)?
We turn our attention to jobs, which I think will be weak, but don’t expect much support for equities to come from the bond market. (I do believe that not enough people are paying attention to the tariff revenue, which is definitely helping fight the deficit).
Once this earnings and data intensive week is over, my belief is that we will need to see "national production for national security" really need to kick in, with investments and deregulation to propel the economy and markets higher.
Be prepared for some tariff headlines that could spook the market, at least a little bit, as the president may want to send a strong message to countries that haven’t yet come up with a deal (though the details on deals “announced” seem quite limited in their scope and even whether the other country fully agrees, but that is the nature of tariffs so far under this administration).
Good luck, I hope I’m wrong on jobs, but I do think it will put a damper on some of the enthusiasm.
