Kudos to Fed board members Stephen Miran and Chris Waller for dissenting at today’s Open Market Committee meeting. In favor of lowering the Fed funds by one quarter of a percentage point. The economy is in a disinflationary supply-side boom. Growth is strong, but inflation pressures are actually easing.
Some quick numbers: over the past three months, the core personal consumption expenditures price index has increased only 2.3 percent annually, and has been coming down. The three-month core consumer price index has fallen to 1.6 percent. Even the top line CPI is only 2.1 percent. Unit labor costs, which are wages less productivity, are barely higher than 1 percent, over the past year. That might be the best measure of all.
What we have is a productivity-led economy, and it’s counter inflationary, but the Fed under Chairman Jay Powell won’t acknowledge this. They never really talk about it. Full cost expensing is spawning a boom in business capital investment, and that’s promoting the productivity boom. But the Fed never talks about this either.
Meanwhile, energy prices including gasoline that permeate the economy, have been coming down for a year, but the Fed never seems to talk about that. Of course, it’s all counter inflationary. Meanwhile, for months and months, Mr. Powell obsessed about tariff inflation, but so far none of it materialized. Goods prices, both core and top line, both 12 and 3 months, are lower than the Fed’s 2 percent target rate, but Mr. Powell no longer talks about that either. The Fed models, to be sure, are wrong. Growth does not cause inflation. Neither does more people working cause inflation, with a low unemployment rate.
At Davos, President Trump wants to know why good economic news seems to always rattle financial markets. Yet that’s because markets think the Fed will jack up interest rates and stop the boom, even though the historical evidence says that model is completely wrong.
David Malpass asks in today’s Wall Street Journal why American bond rates are so much higher than places like Japan and Communist China, when our economy is so much better and our profits, and hence credit, is so much stronger. Well, that’s a very good question.
No doubt, the need for “King Dollar” stability and confidence, would help bring down rates. The five-year dollar index chart looks pretty steady, around $100 on the index. I don’t see a crisis there.
And Treasury Man Scott Bessent reaffirmed a strong dollar policy today. Truly, it’s time for a change at the Fed. Throw out the models, and the bad attitudes about growth and inflation. Please, Mr. Trump, make your Fed choice truly transformational.
