Fed is data dependent?
“Insensibly, one begins to twist facts to suit theories, instead of theories to suit facts.”
The FOMC’s job never seems to get any easier. Pressure to cut rates once again is building as domestic and foreign forces continue weighing in. Yet real rates are or very near 0%. But Mr. Powell may finally be listening to what President Trump has often so fervently advocated. But President Trump should be cautious in his efforts and manner to bring rates down.
At one time the administration was considering removing or firing Mr. Powell, but President Trump should remember that Mr. Powell may have as much or more power to fire the President as the President does him. The equity markets have baked in the 25-bps cut so I don’t expect anything much different than that. The European Central Bank cut rates last week and decided it needed to do more bond buying.
The contagion of Japanese monetary policy continues to move west. Inflation in the US was stronger last week than expected but retail sales softened. Housing data this week should help the forward outlook. The migration of several key economic indicators toward a slowing economy has begun with manufacturing most noticeable. Employment data remains the bedrock of the expansion. Overall, most data still point to a growing economy, but it appears that “data dependent” has left the room and closed the door.
As the Fed tries to coax an ever-slowing economy into perpetuity, the symptoms of old age, massive deficits and lack of maneuverability will one day be a bad dream come true.
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