Journalist: The Federal Reserve (Fed) will cut its rate again by a quarter point when its conclave ends. The futures and betting markets anticipate it with 97% probability. Given the recent rise in inflation, and the steady rise in long rates since the central bank embarked on the rate-cutting phase, doesn’t that catch your attention? Isn’t that a contradiction?
Gordon Gekko: Without forward guidance, the meeting would have a close forecast.
Q: People assume that the Fed is going to cut rates again because that is what the authorities themselves have made them understand. Not because the data convinces them.
GG: That’s how it is. The quasi-certainty derives from official communication, not from circumstances or context.
Q: The Fed is playing. But shouldn’t you pause and take more time before intervening? Nor does he know what the Trump Administration is up to.
GG: I could have skipped the November meeting and triggered today. Or, the other way around. And let’s not forget that the decline started in September with a half-point blow. In retrospect, and remembering the threat posed by Sahm’s Law, the economy and employment are in good shape, better than expected. They don’t need help.
Q.: Sahm’s law, which took into account the half-point jump in the unemployment rate, raised the alarm about a probable recession. However, Claudia Sahm herself said that it was an exaggeration.
GG: The Fed took its time to start lowering rates. When he decided, he did it with enthusiasm. And today he will confirm it.
Q: You closed a danger front, which was later proven not to be such. The economy is growing around 3%. The yield curve resumed a positive slope even in its most demanding definition, which compares 10-year rates with three-month rates. But wasn’t the rear guard neglected? Didn’t inflation sneak up on you? And also expectations, judging by the collapse of Treasury bonds.
GG: We moved from port to starboard, but without collision.
Q: Shouldn’t we straighten the course? I’m not saying to suspend the rate reduction process, but to take a break to gather better evidence.
GG: I understand that this is how it will be, but starting in January. I imagine there will be a strong debate. We heard voices like Michelle Bowman or Lorie Logan who seemed happy to apply the brakes today.
Q: The one pushing is the big boss, Jay Powell.
GG: And where captain rules.
Q: Powell is also the one who is in the line of fire. Although the president-elect no longer says that he plans to fire him.
GG: As is. And the next Secretary of the Treasury, Scott Bessent, also proposed nullifying his influence with a parallel Fed and appointing a substitute who would be very active in communication. To the point of competing for the attention of the markets.
Q: Nonsense.
GG: That’s why the idea was shelved. But Powell remains in the crosshairs. And as soon as it suspends the rate cut, it will receive attacks again. That’s why perhaps his plight is understandable. Three slices and a full point rate cut, all in the final phase of the Biden Administration. With the feeling that it is too much. That is to say, Trump starts with a Fed that has already done what it should and a little more.
Q: You will have to earn merit to earn new rate reductions.
GG: Indeed. And not just with the Fed. Long rates began to climb when Trump rebounded in the campaign, when he was still trailing Kamala Harris in the polls. His ideas are compatible with higher interest rates, not lower ones. Unless you explain them differently.
Q.: At this meeting the Fed will update its economic projections. And the point map. The roadmap is more important than the specific decision to lower rates today.
GG: And if today’s decision is not unanimous, if Michelle Bowman, as happened in September, votes in dissent, even more so. But make no mistake, the dot map will reflect a stylized position of the Fed, agnostic regarding Trump’s government program.
Q: I would say very benevolent.
GG: If Trump plans to execute what he promised during the campaign, yes. This is where the bonanza will have come. Trump and Bessent know that. We will have to see how they incorporate it into the equation. But the Fed is not going to make a fuss.
Q: No?
GG: That’s what long rates are for. They are the ones who go first to the front as we already saw. The Fed has a rate cushion enough to fold its arms and maintain radio silence until it sees concrete results. Despite the cuts, the real rate remains restrictive.
Source: Ambito
I am an author and journalist who has worked in the entertainment industry for over a decade. I currently work as a news editor at a major news website, and my focus is on covering the latest trends in entertainment. I also write occasional pieces for other outlets, and have authored two books about the entertainment industry.
