I’m Late, I’m Late – For a Very Important Rate (cut)…

Everybody has that friend who’s late to everything. Doesn’t matter what it is, they’re going to be late. It’s just their personality.

In the world of central bankers, that friend is Jerome Powell.

You will quite likely recall that JP back in 2021 routinely insisted that inflation was “transitory”—that airdropping cargo planes’ worth of free money into the economy was not going to be a big problem.

I know a guy (he’s writing this column) who regularly insisted that Powell’s regular insistences were dead wrong—that a nasty bout of inflation was soon to hit the US economy.

Now here we are, three years later, and JP and The Fed Gang are late again.

The Fed keeps holding off on cutting interest rates, despite clear evidence that the economy is struggling. Declining job growth, poor consumer sentiment, turgid GDP growth, transportation companies beginning to struggle…

Just this week, Starbucks announced weak sales in Q1—the first decline since the pandemic—because consumers are cutting back, no longer splurging on their $5 cup o’ Joe.

Other signs of economic anemia exist… but you get the point.

Thing is, JP seems to be wearing blinkers over his eyes that only allow him to focus on inflation. As I keep noting here in Field Notes, the Fed’s actions over the last two years feel a lot like they are trying to channel the ghost of Paul Volcker and his Fed’s 1970s battle with inflation.

I won’t go through this again. I’ll only say that 1970s America and 2020s America are two vastly different countries with two vastly different financial situations.

But here’s the real news I want to highlight today: The Swedish Riksbank, the country’s central bank, cut local interest rates on Tuesday by 0.25%. That marks the fourth European central bank to cut rates this year. Switzerland, Hungary, and the Czech Republic are the other three.

Those four cuts foreshadow a European Central Bank rate cut very soon.

Yet, JP keeps telling the markets he’s not ready to cut, that rates might have to stay higher for longer. Per his comments at a D.C. press conference last week:

So far the data has not given us that greater confidence. It is likely that gaining such greater confidence will take longer than previously expected.

A brief aside: My wife and I went to a sushi restaurant in here in Cascais, Portugal last night. Right before we were due to leave, I popped my head into the bedroom, where my wife was watching a TV show on her laptop, to tell her we need to get going. It was 6:03 p.m. Our reservation was for 6:30.

“Five minutes,” she told me.

“You always say five minutes,” I replied.

We left the apartment at 6:51.

Back to today’s dispatch…

Jerome Powell is not going to be ready in five minutes.

He’s like my wife—focused on something else that’s less important in that moment.

The rest of the world’s central bankers are prepping for an economic slowdown they all see.

But in the US, the Fed maintains its short-sighted focus on an inflationary problem over which the Fed has zero control.

I’ve noted this before many times, so I will be brief, but the Fed cannot control the war in Ukraine, or the Houthi rebels in Yemen who have disrupted global shipping. The Fed cannot control oil prices that are rising because of years of under-investment in finding new reserves. And it cannot dictate Mother Nature’s moods, which are terrorizing crops globally, leading to elevated food prices.

So the Fed remains focused on what it cannot control instead of looking at what’s happening outside their bubble.

Which is why JP is going to be late again.

At some point, he and the Fed are going to realize that “higher for longer” is their 2024 version of “inflation is transitory.”

The economy is gassed. It needs to be pulled from the game and benched for a bit to rest.

But JP doesn’t see it that way.

And, so, the underlying weakness will grow even more problematic.

Take heart, though, as an investor in stocks and crypto: Rate cuts are coming. Period. And when they arrive, we’re going to see a huge relief rally.

It’s just a matter of JP finally realizing he’s late again and that he needs to get going now…

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