Gonna kill, kill, kill, kill, kill the poor
Kill, kill, kill, kill, kill the poor
Kill, kill, kill, kill, kill the poor tonight
America just doesn’t produce bands with such poetic lyrics like that in this current era.
Hell, I could just use that chorus from the Dead Kennedys’ song, Kill the Poor, to summarize the FOMC statement tomorrow. But my readers do not come here for snappy sharp analysis like that, one comes here to find out why the Fed wants to kill the poor, not how.
First, let’s review the two key statements from last month’s FOMC meeting on September 17th, starting with the usual generic justification for the move they elected to make.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty about the economic outlook remains elevated. The Committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment have risen.
Emphasis was this author’s and for good reason. If it was realistic about the 2% target rate for inflation they would not have cut but instead of holding the line, they acquiesced to the President to get Trump off of their backs by cutting rates 25 bps.
The second statement is where they might run into some issues this meeting.
In support of its goals and in light of the shift in the balance of risks, the Committee decided to lower the target range for the federal funds rate by 1/4 percentage point to 4 to 4‑1/4 percent. In considering additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities. The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective.
Thus the question arises:
What incoming data?
There has been no official data other than the CPI report which indicates longer term core inflation is still stuck at 3% and the usual caveat that CPI-W was concocted to reflect a lower rate simply for the purposes of reducing the Federal government’s exposure to annual cost of living adjustment (COLA) price increases.
This puts the Fed into a box but there is an out. Jay Powell and company could elect to end quantitative tightening which will thrill the bond market but at the same time decide to freeze any move on the Fed Funds Rate targets until the real time data is concurrent with future meetings. This puts more political pressure on the administration, both political parties, and of course the courts to resolve the major outstanding issues which obstruct a clear path to easy money:
- The government shut down
- Quality data processed and brought up to date being produced (fat chance)
- The courts resolving the IEEPA decision which will have a direct impact on the Producer Price Index and potentially lower CPI-U even more.
All of this is way too logical and the markets are of course predicting the easiest and obvious solution, another 25 bps cut with a vague statement supporting the end of QT.
This chart from the Atlanta Fed showing the projected range and distribution pattern projects of the SOFR (Fed Funds):
Clearly, markets are expecting another 50 bps in cuts, probably 25 bps with tomorrow’s meeting and another 25 in December. While this looks good on paper, with a stagflationary wave washing over America’s economic shores, the idea of cutting another 50 bps looks foolish, as even the Fed’s own speakers have been out promoting how much easier monetary policy and access to credit has been.
Maybe Jay Powell will hold his press conference and announce the Fed now has the neutron bomb. Per the song by the Dead Kennedys, it could kill the poor quickly, efficiently, and much more humanely. That would be so much better than inflating the national debt away while debasing the American currency almost to zero which makes it almost impossible for the poor obtain a very basic standard of living.