Jerome Powell’s Federal Reserve is expected to cut interest rates at 2 PM EST today. The only debate revolves around market expectations of either a 50-basis-point-cut (60%), a 25-basis-point-cut (39%), or no-cut-at-all (1%).
Powell and the other Fed board members are voting for aggressive rate cuts only months before a presidential election, with housing price inflation still running above 5%. This rate cut should be viewed as politically motivated to help the Democrat Party and will have inflationary consequences.
Markets have “priced in” a 50-basis-point cut today and another 200 basis points of interest rate cuts between the end of the year and 2026. These future interest rate cut expectations suggest we have already entered a recession, or one is coming.
Powell’s rate cut is likely to be a “Sell the News” event.
The most significant policy error by the Fed during the past decade, has been keeping rates too low for too long, which has broken the market’s risk-pricing mechanisms. As a result, we will see significant declines in stock prices, and an increase in defaults, bankruptcies, and asset quality no matter what Powell’s Fed decides today.
The economic damage will cause a full-blown financial crisis, with the Fed executing more rate cuts, Quantitative Easing (QE), and bank bailouts. The Fed’s “Rinse and Repeat” rescue plan will only succeed in a further erosion of the value of U.S. dollars and cause inflation to surge out of control.
Thanks to the Fed’s stealth QE, it’s striking how only seven companies have provided most of the market's returns. The “Magnificent Seven” stocks that have outperformed in this market cycle are the Big Tech darlings Alphabet, Apple, Amazon, Meta Platforms, Microsoft, Nvidia, and Tesla.
The recent record highs in stock indices do not reflect the economy at large, which would be defined by the inflationary pain felt by Main Street consumers when they pay their mortgages, grocery bills, or gasoline at the pump. Today’s unsustainable valuations reflect retail investors “fear of missing out.”
Biden/Harris Track Record
When President Joe Biden and Vice President Kamala Harris entered office, inflation was at 1.4% and peaked at 9.1% by mid-2022 — a level not seen since 1982, when interest rates were above 15%. Oil prices skyrocketed nearly 200% even before the Ukraine conflict, mainly because the Biden administration adopted a “war of fossil fuels” that included the so-called “Green New Deal,” which is neither green, nor new, nor affordable. Home prices soared 50% higher since COVID and Biden and Harris entered the White House.
The $900 billion Biden-Harris Inflation Reduction Act, which caused inflation, consumer financial distress, and record levels of debt, has deteriorated the quality of life for American families. If re-elected, the Harris policies will not “turn the page” but sink the ship!
The Fed’s Track Record
Before the Great Financial Crisis (GFC), Fed Chairman Ben Bernanke assured the public that "Subprime Loans Are Contained." During the GFC, Ben Bernanke and Vice-Chairperson Janet Yellen, career academics and bureaucrats, aka “experts,” assured Americans that their programs — trillion-dollars in bailouts for bankers and billionaires; Quantitative Easing (QE), aka inflationary money printing; and artificially low interest rates — were “temporary emergency measures.”
Bernanke and Yellen proclaimed, “Inflation is transitory,” and “We will not see another credit crisis in our lifetimes.” The Fed, both Bernanke and Yellen, pushed those platforms’ misinformation for nearly a decade!
Here is the thing – Subprime loans were the cause of the GFC, QE never ended, and inflation was never transitory. The Fed’s money printing and politicians’ reckless spending caused today’s economic problems. We must either re-imagine or shudder the Federal Reserve.
Is the Fed Independent or politically and financially motivated?
Ex-Fed Chair and Joe Biden’s Treasury Secretary Janet Yellen and her husband, Nobel laureate George Akerlof, have contributed around $200,000 to Democratic politicians or the party. Yellen was paid at least $7.2 million in speaking fees from mostly the big banks during her transition from being Fed Chair into her current role as Treasury Secretary for Joe Biden.
In 2019, before Trump's re-election, Janet Yellen contributed $25,000 to Joe Biden's Victory fund, $5,600 to the Biden for President Fund (the legal maximum), and another $25,000 to the Democratic National Committee.
Akerlof, an economics Nobel laureate, also contributed $25,000 to Joe Biden's Victory fund, $5,600 to the Biden for President (the legal maximum) and $25,000 to the Democratic National Committee.
Akerlof was a signatory of the much-talked-about letter authored by 16 Nobel laureates criticizing and fearmongering about Trump's economic policies. In fact, nearly 90% of the signatories of that letter contributed to registered Democratic candidates of the party.
Before Trump’s re-election bid, Bill Dudley, the former president of the Federal Reserve Bank of New York, wrote an article for Bloomberg titled “The Fed Shouldn’t Enable Trump,” saying if the Fed disagreed with Trump's policies, the Fed would raise interest rates.
Dudley suggested that since the Fed has a role in economic conditions, the Fed might consider how its policies would impact Trump's re-election chances. Dudley, a staunch anti-Trumper, argued that if the Fed believed Trump's policies (like the trade war with China) were harmful to the U.S. economy in the long run, it might be within the Fed’s purview not to ease monetary policy, thereby not providing an economic boost that could help Trump's re-election.
On September 16th, Bill Dudley was back again on Bloomberg, and all over the media, calling for the Fed to “Go big on rate cuts now.” It seems most of the media is calling for the Fed to cut rates by 50-basis points to support the Harris campaign, and make the already 5% monthly increase in house prices gallop higher.
Central banks are responsible for our country’s economic stability.
When the political bias of their committee members, or financial conflicts of interest become clear, it becomes fair for the public to question the notion of impartial governance. We must demand reform and transparent disclosure in all our government institutions, judiciaries, and media.
This is not only about economic policy and the Federal Reserve; it's about restoring the public's faith in the fairness of our entire system.
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Mitch Feierstein knows the financial industry inside out. For the past four decades he consistently created opportunity and value where others have failed to look. He is a successful investor and CEO of the Glacier Environmental Fund Limited. Prior to Glacier, he was Senior Portfolio Manager of the Cheyne Carbon Fund, part of one of the largest and best-respected hedge-fund groups operating in Europe. He has acted as a consultant for a number of governments in their disaster and contingency planning. He is the author of Planet Ponzi, the only insider's account of the credit crisis detailing; How we got into the mess, what happens next, and what you need to do to protect yourself. He divides his time between London and New York.