What’s Up with the Fed?

20 Dec 2024 by rate3

That I am fundamentally against the existence of the Fed shall not be a secret to my readers. The Fed is a 110-year-old relic of the Marxist-Keynesian past, which was included in Stalin’s and Mussolini’s playbook of the ‘scientific management’ of all aspects of human life, first and foremost their economic and financial activities.

The real reason behind that “management” is not, of course, the desire to make people’s lives better by avoiding “economic crises.” In all 110+ years of the Fed’s existence, they have proven to be absolutely incapable of doing so. The real reason is to gain additional and very powerful leverage to control individuals, especially those with more brains and, therefore, wealth than others.

Despite all my natural skepticism, more often than not, I can’t suppress my bewilderment at how low the professional qualifications of those running this atrocious institution are and how large their preoccupation with their own bureaucratic and political egos and careers is.

That is what happened today. All fundamentals have been showing slowing production, slowing employment, and yes, even slowing consumer consumption. So, all core inflation factors were indicating that the economy is entering stagflation, especially as non-core inflation (energy and food) has started to rise since around May-June of 2024.

However, despite them saying themselves that non-core inflation is out of their reach and that the employment situation has started to look worrisome, they not only decided to cut 25 points, which was expected, instead of the urgently needed 50, but Powell also found it necessary to briskly change his outlook for future 2025 rate cuts from more-or-less dovish (4 cuts) to nearly hawkish (two cuts, maybe).

It must be absolutely obvious to anyone with expertise in economics and markets that this will lead to a swift market reaction. That is exactly what happened. Now everyone, including corporate traders, is confused as to whether the reasons for that abrupt change are more politically driven — trying to influence Trump’s lower-tax-higher-tariff policies before they are actually implemented.

Indeed, if we now have a situation on our hands similar to but in reverse of that in Brazil, where Lula is fighting his central bank for his pro-spending, socialist policies, if Powell starts to fight Trump for his pro-capitalist tax-easing policies, we’ll indeed have such volatility in the markets in 2025 for which any hedge manager would sell his soul.