Trump will get his rate cuts by causing a global recession.
Trump on Interest Rates Truth Social Link
This would be a PERFECT time for Fed Chairman Jerome Powell to cut Interest Rates. He is always “late,” but he could now change his image, and quickly. Energy prices are down, Interest Rates are down, Inflation is down, even Eggs are down 69%, and Jobs are UP, all within two months – A BIG WIN for America. CUT INTEREST RATES, JEROME, AND STOP PLAYING POLITICS!
Conversation with Fed Chair Jerome H. Powell
Please consider a Conversation with Fed Chair Jerome H. Powell
Key Quotes
- Higher tariffs will be working their way through our economy and are likely to raise inflation in coming quarters. Near term inflation expectations have moved up.
- We face a highly uncertain outlook with elevated risks of both higher unemployment and higher inflation. The new administration is in the process of implementing substantial policy changes in four distinct areas: trade, immigration, fiscal policy, and regulation.
- Our monetary policy stance is well-positioned to deal with the risks and uncertainties that we face as we gain a better understanding of the policy changes and their likely effects on the economy. It is not our role to comment on those policies.
- We have stressed that it is very difficult to assess the economic effects of higher tariffs until there is greater certainty about the details and the extent of any retaliation from our trading partners.
- While uncertainty remains elevated, it is now becoming clear that tariff increases will be significantly larger than expected. And the same is likely true with economic effects which will include higher inflation and slower growth. The size and duration of these effects remains uncertain.
- While tariffs are highly likely to generate at least a temporary rise in in inflation, it’s also possible that the effects could be more persistent.
- We are well-positioned to wait for greater clarity before considering any adjustments to our policy stance. It is too soon to say what the appropriate stance will be for monetary policy.
In response to a question Powell stated “In this situation, what we face is what I mentioned in my remarks, you actually have risks for higher unemployment and higher inflation. That’s difficult for a central bank because our tools either slow down or speed up the economy over time. Higher unemployment would call for speeding up the economy and higher inflation would call for slowing it down.”
Synopsis of Powell’s Speech and Q&A
Stagflation is a growing possibility. That is why we are in a wait-and-see mode.
Powell does not see that at the moment but he discussed the risks.
The bond market and commodities have reacted as if we have a strong slowdown that outweighs the inflation impacts of tariffs. That has been my general expectation as well.
One reader repeatedly asked where I saw the 10-year treasury yield a year from now. I don’t know anymore that Powell (or anyone else). I don’t know.
I will not be surprised by stagflation nor will I be surprised by a very strong credit deflation collapse with asset prices collapsing.
The risk is more to the latter. The Fed and Congress both played a role in blowing huge bubbles.
Rare Earth Risks
My base case is my opening statement “Trump will get his rate cuts by causing a global recession.“ But it is not at all clear what would happen if China cut off all rare earth access to the world.
I discussed rare earths in China Strikes Back With 34 Percent Tariffs, Stocks Plunge Second Day
China restricts 7 more rare earths, something I have warned about many times.
Related Posts
November 21, 2024: China’s Puts Export Curbs on Minerals US Needs for Weapons and Technology
In a warning shot to the Trump administration, China tightens export controls on some dual-use minerals.
December 3, 2024: China Halts Rare Exports Used by US Technology Companies and the Military
This is China’s advance salvo at Trump tariffs. It comes one day after the Biden administration expanded curbs on the sale of advanced American technology to China.
Today China retaliated by Immediately restricting exports of seven types of rare earths.
China can easily block rare earth exports to the world. If that happens, Trump will panic.
We should not be in this position, but we are.
Finally, please note Five Republican Senators Break Ranks With Trump Over His Tariff Madness