The Federal Reserve Is Out of Tricks

[Celerity]

https://prospect.org/blogs-and-newsletters/tap/2025-09-15-federal-reserve-out-of-tricks/



On Wednesday, the Federal Reserve will decide whether to cut rates and by how much. Thanks to Trump’s perverse economic policies, the Fed has run out of ways to reconcile high employment with low inflation. Both indicators have been worsening. The most recent revision of the Consumer Price Index, released Thursday, shows rising inflation. It was up 0.4 percent in August, for an annual rate of 4.8 percent, or more than double the Fed’s target of 2 percent. Grocery prices were up at an annual rate of 7.2 percent. Unemployment and wage indicators are also getting worse. The rising inflation rate has undermined real wages. A year ago, real inflation-adjusted wages were growing at an annual rate of 1.3 percent; the latest report cuts that almost in half, to 0.7 percent.

And the most recent data on new unemployment insurance claims, for the week ending September 6, shows that they are at their highest level since September 2021, when America was still suffering from the pandemic. When the Fed meets again Tuesday and Wednesday, it’s almost certain that the Federal Open Market Committee will cut the federal funds rate by a modest quarter-point. Trump and his allies on the Fed want a much deeper cut, but Trump has also run out of room to stack the Fed, at least for the next several months. The effort by Bill Pulte, a MAGA zealot who heads the Federal Housing Finance Agency, to smear and fire Fed governor Lisa Cook has now blown up in Trump’s face. Documents reviewed by major media organizations show that Cook indeed described her Florida condo as a second home or a vacation home, and that she paid higher than prevailing interest rates for a primary residence.

Pulte didn’t do his homework. He apparently reviewed standard documents that Cook signed but not supporting materials providing additional details. It also turns out that Pulte’s own wealthy parents did commit the same kind of mortgage fraud that he falsely attributes to Cook, claiming primary residence in both Michigan and Florida. Tax officials in Bloomfield Township, Michigan, immediately revoked the exemption entitling the Pultes to a lower property tax rate. Pulte is the one who should be fired. And it’s time for the ever-prudent Fed chair Jay Powell, who has been trying to play it straight while avoiding Trump’s wrath, to come to the defense of his colleague Cook.

The exposure of the supposed fraud case against Cook as itself a fraud will make it even harder for Trump to prevail in court in his claim that he not only has the right to fire Fed governors before their terms expire for cause but that he may determine what constitutes cause. But here’s the truly insane part. Over the weekend, Trump doubled down on his effort to fire Cook. He filed another set of arguments with the U.S. Court of Appeals for the D.C. Circuit, where judges are considering his emergency request to proceed with firing Ms. Cook after a lower court halted those plans last week. The latest revelations totally vindicate that decision by district court Judge Jia M. Cobb. But the most recent filing by Trump’s lawyers doesn’t even deign to mention that Trump’s pretext for firing Cook has been revealed as a fake.

snip

[Bernardo de La Paz]

1. Fish or cut bait?

[Wounded Bear]

2. Corrollary to 'when your only tool is a hammer'...

The Fed's problem is that it only has one tool to try and temper two different problems, inflation and unemployment.

Currently prices are rising, driving up inflation which would usually require increases in rates. But unemployment is on the rise as well, with the gov't sluffing off thousands of workers and companies starting to feel the effects of the tariffs and shedding workers as well.

trump is pressuring for a rate decrease, which will not help with inflation and while it might encourage employers to hire, the inflationary pressure of the tariffs will dampen that.

Looks like we're heading into a stagflationary cycle with inflation and unemployment both rising over the next few months.

Hunker down and cut your expenses where you can, it's gonna be a rough ride, especially for us folks on the lower parts of the income inequality graphs.

[Fiendish Thingy]

3. It appears the Fed, stacked by Trump or not, cannot halt the consequences of Trumponomics

Trump may get the lower interest rates and weaker dollar he craves to reduce the cost of his own debt payments and (he thinks) boost his own crypto holdings, but the trade off will be that the US will be in a recession with higher unemployment and close to double digit inflation, right before the midterms.

Yay?

[newdeal2]

5. If it's going to happen, let it happen before the midterms

I want ‘08 type numbers in our favor.

[Fiendish Thingy]

6. It's already happening

The only question is just how deep the recession will be, and how high will inflation get by this time next year.

[DFW]

4. Two simple indicators have been telling that story for months now.

The price of gold, already heading for the previously unthinkable $3000 per troy ounce barrier in February, is currently flirting (within $20) the $3700 barrier.

The Value of the Euro against the US dollar at the same time was about $1.04. Now, it is over $1.18.

The two together indicate that we've got trouble, right here in Capital City. It's quite a mess, and that ends with S" and that stands for stagflation.

[leftstreet]

8. +1

[Mark.b2]

7. The markets won't like no action...

I’ve had a couple good weeks in my portfolio as investors expect the quarter point. I’d love to see the half-point, and I think markets would love it.

I’ve resisted taking profits on a couple stocks. Gonna let it ride! Momma needs a nice cruise this winter! LOL