The Fed Just Chose Inflation... And the Bond Market Called Its Bluff

Fed Maintains Policy Rate [00:37]

• The Federal Reserve announced it left its policy rate unchanged, a widely expected decision.
• There was a 30% probability of a quarter-point rate hike, which would have been insufficient.
• The current rate is 3.5% to 3.75%, unchanged since December.

  "The fundamentals are we have so much debt. This whole economy is such a massive bubble that if we actually tried to do what Paul Vulkar did, we would create an economic condition much worse than what they perceive the threat to be from inflation."

Criticism of Fed's Inflation Stance [01:05]

• A larger rate hike and action on the balance sheet and money supply are deemed necessary.
• The Fed's actions are seen as the opposite of what is needed to combat inflation.
• Fed Chair Jerome Powell's rhetoric is contrasted with his actions, suggesting he is "all bark and no bite."

  "The fact of the matter is, and I've been saying this from the beginning, he's all bark and no bite. He can talk the talk and he talked it again today but he can't walk the walk and the markets now are starting to take notice of what I have been talking about."

Powell's Remarks and Market Interpretation [03:02]

• Powell praised the committee and the economy's resilience, which the speaker suggests is to support political narratives.
• Powell reiterated the Fed's resolve to bring down inflation to 2%.
• The speaker questions the Fed's commitment, noting inflation has been above 2% for over five years.

  "Well, what Wars wanted to make sure is that that belief uh was extinguished that it's not the case. Certainly not under his watch. even if that may have been the case and he didn't admit that it was, but he made it clear in his rhetoric that it's not the case now that the Fed does not have a secret target higher than 2%."

Ineffective Monetary Policy [05:17]

• Monetary policy has not been restrictive enough to reduce inflation to 2%.
• Money supply growth and credit expansion continued despite rate hikes.
• Increased credit chasing goods led to price increases.

  "In fact, monetary policy remained accommodative despite all of the Fed's rate hikes because the entire time the Fed was hiking rates under um Powell, money supply growth only shrank briefly, credit never contracted."

Fed's Surrender on Inflation [06:51]

• The Fed stopped hiking rates when economic problems, like bank failures, arose.
• The speaker claims the Fed surrendered, not won, the inflation fight.
• This led to inflation never truly going away.

  "The reason they won the inflation war without that collateral damage is because they really didn't win. They surrendered before the damage became too great. And that's why inflation never went away because the Fed didn't have what it takes to get rid of it."

Market Reaction to Non-Hike [08:02]

• The decision not to hike rates was made to avoid a market crash, though markets tanked anyway.
• The Fed's tough talk on inflation is seen as lacking action.
• Interest rates remain the same as when Powell took over.

  "He didn't do it with an opportunity to, you know, go back to quantitative tightening. Didn't do that either. All he did is talk about how uh, you know, how uh, tough they were going to be, how they were serious about bringing down inflation, just like he said he was going to do. But he didn't do anything about it."

Powell's View on Market Guidance [16:32]

• Powell expressed satisfaction with long-term interest rates moving higher without Fed forward guidance.
• He believes markets should not take cues from the Fed but rather reflect economic fundamentals.
• The speaker disagrees, believing real rates are falling due to underestimated inflation.

  "Well, what Worsh said was this is a good thing because the markets aren't cheating. because they're not taking their cue from the Fed. And I agree with that. I've never liked um the forward guidance where markets are uh pricing things based on what they think the Fed is going to do, not based on what they believe uh is economically fundamentally justified."

Market Questions and Fed's Evasion [19:13]

• Reporters questioned Powell on why the Fed wasn't acting on market signals for higher rates.
• Powell sidestepped questions about what the markets were telling him and why he wasn't hiking rates.
• The Fed's commitment to the 2% inflation target is questioned due to inaction.

  "Well, so far all you're doing is talking, right? Which is true. He said, "What are you waiting for?" He didn't answer the question. "What are you waiting for?" He didn't have an explanation."

Market Sell-off and Bond Yields [27:32]

• The bond market sold off, with the 30-year Treasury yield reaching a 20-year high.
• This decline in bonds contributed to the stock market sell-off.
• The Fed's decision not to hike rates is interpreted as choosing inflation over market stability.

  "The bond market sold off and that's when the stock market rolled over. So, the market closed on the lows of the day. The Dow was down 2.2. 2% which is about 1,100 and change. S&P not quite down as much 1.5%."

Gold as a Safe Haven [34:37]

• Gold rallied while treasuries fell, indicating a loss of confidence in the Fed.
• The speaker asserts gold remains a reliable safe haven and inflation hedge.
• Rising bond yields due to Fed timidity are bullish for gold.

  "Gold is the last safe haven standing. And a lot of people I know recently have been questioning whether gold has lost its luster as a safe haven, whether it's no longer a store of value or an inflation hedge. Yeah, that's all a bunch of BS. It hasn't lost anything."

Economic Data and Fed's Dilemma [39:49]

• Consumer confidence unexpectedly dropped to a 5-year low.
• The trade deficit remains high, and tariffs have not improved it.
• The Fed is in a difficult position, unable to hike rates without causing market downturns.

  "So you know, despite you know the claims of how great the economy is coming from not just Donald Trump but coming from the Fed right we have this really really strong economy uh consumers you know confidence part you know at a 5-year low in certain aspects at 90.8 eight."

Government-Run Grocery Stores Criticized [42:46]

• A plan for government-owned grocery stores in New York offering 30% lower prices is criticized.
• The speaker argues such stores are inefficient and will lead to taxpayer losses.
• This initiative is seen as a socialist approach that will harm the private sector and consumers.

  "How is Mandami going to run his stores so that he could charge 30% less? Because first of all, there's no way the governmentrun grocery store is going to be as lean and mean and efficient as a for-profit grocery store that is run by an entrepreneur who's trying to make a profit."