Shortly after yesterday’s FOMC announcement, Peter went live to unpack its aftermath. He criticizes the Federal Reserve’s decision to hold rates steady, offers insight into Jerome Powell’s press conference remarks, and skewers the notion that the Fed remains “apolitical.” Peter also addresses President Trump’s evolving commentary on oil prices and interest rate cuts as 2025’s economic challenges continue to mount.
Starting with rumors surrounding a potential Trump-driven interest rate cut, Peter clarifies what the president actually said regarding oil prices:
Because to be honest, what Trump said was that he expects the price of oil to drop sharply. And as a result of that big drop in oil prices, he would demand that the Fed cut rates immediately. So, that hasn’t happened yet. I mean, oil prices have come down from the high they hit a week or two ago. But they’re still what, $72, $73 a barrel? That’s not the type of price drop that Trump spoke about, which would result in demanding that Powell cut interest rates.
In the Fed press conference, when pressed on policy stances and tariffs, Jerome Powell claimed the Fed wanted to stay neutral. Peter, however, challenges that logic:
Another question he was asked was to comment on the tariffs and the policy that is being considered and what impact that might have on their mandate on inflation. And he says, well, we’re not going to talk about it. We’re not going to comment on that. … That’s not any of our business, which of course is nonsense. … Being apolitical, and I’ve said this many times on this podcast, it doesn’t mean not having an opinion. It means being above the fray. It means being free to express your opinion without fear of political consequences.
He reiterates that the Fed’s role includes pushing back against policies that may harm the economy, regardless of public opinion:
The point about having an independent Fed is that these guys don’t have to care what the voters want because they don’t need their votes. They’re supposed to be able to do the right thing even if the voters don’t know what that is. Even if the voters want to do the wrong thing, they’re supposed to be the adults in the room to say, ‘No, no, no, what you want is wrong, and here’s why.’
He underscores that, despite the dominant narrative, monetary policy is still far from genuinely tight:
Monetary policy has remained loose. Interest rates are still too low. You can tell by the record amounts of debt and borrowing that have not been deterred at all by the increase in rates because it’s been too little. Rates have not moved up enough to be restrictive. That’s why you still have all this borrowing, because it’s still cheap to borrow. In fact, the money supply growth continues.
During the Q&A, Powell reaffirmed that waiting for 2% inflation is not required before cutting rates again:
He is not waiting for 2% before cutting rates, that he will cut rates before 2% as long as it looks like inflation is headed back down there. So in other words, they could cut it two and a half or wherever. They’re not going to wait for 2%, which is in contrast to what the Fed did when inflation was below 2%. … He had that attitude when we were below 2%, but he’s not equally as vigilant when it’s above 2%.
Powell’s noncommittal response to a question on Bitcoin betrays the Fed’s strong concern with propping up asset prices, even if it requires inflation:
He was asked about asset bubbles in general, and he acknowledged that stock prices remain elevated, but he didn’t mention that he was in any way concerned about bubbles or falling asset prices or in any way tailoring his monetary policy to asset price, which I think is just not true. Of course, the Fed is very much concerned about asset prices. The last thing they want is asset prices to crash. The reason that they pumped up the money supply so much specifically was to get asset prices to go up.
Peter wraps by addressing some of President Trump’s other comments, including sustained talk about reforming or abolishing income taxes. Trump’s proposals are not radical enough:
He talked again about eliminating the income tax, which of course is music to my ears. I would love to see the income tax eliminated and not just the normal income tax, right, that we all consider an income tax. But the Social Security tax, that’s an income tax too. You’re paying a tax on your wages, right? That’s your income, right? … So if we’re going to eliminate income taxes, let’s eliminate all the income taxes, including the Social Security income tax, which is a highly regressive tax.
In other news, the CME Comex is having an unprecedented month. Check out the details here.