Fed Chairman Admits Mistakes & Predicts Economy Strength Moving Forward
Today’s letter is brought to you by Espresso Displays!I normally work on my desktop computer and am hyper productive. The second that I leave my desk, I lose my productivity on a laptop. So I started to use a second screen and it seems to have fixed the issue. It took awhile to evaluate many different screens — Espresso Displays was by far the best one. I use it every day. I can’t imagine working from my laptop without it now. They are lightweight, thin, and look like Steve Jobs designed them himself. Any reader of The Pomp Letter who orders one this week will get a great deal. Highly recommend! To investors, Federal Reserve Chairman Jerome Powell was featured in a 60 Minutes interview last night. It was the most transparent and honest that I have ever heard the Fed Chair. The premise of the interview was stated upfront in the segment — “Jerome Powell, the chair of the Federal Reserve, may have just rescued the economy from inflation without throwing millions out of work.” Here were some of the main takeaways from the conversation:
I highly recommend watching the full interview. It is only 13 minutes long and Jerome Powell was in rare form. It almost felt like he was more revealing about various aspects of the Fed’s thought process as a way to combat different narratives in the market. Specifically, it was surprising to see the Fed Chairman openly critique fiscal policy and explicitly call it out as unsustainable. Everyone knows he is right, but friendly fire is rarely exchanged in elite leadership circles — maybe Powell just doesn’t give a F*** anymore. While most people will focus on the substance of Powell’s comments, I want to call out the form factor. It is powerful in a digitally-native world to sit for an interview like 60 Minutes and be frank / transparent. The 13 minute segment produced a plethora of viral clips all over the internet. If the goal was to get a message out to the American people, it is safe to say Jerome Powell accomplished the mission. So what was that message? The Federal Reserve is going to cut interest rates multiple times this year. Since the monetary policy is created and led by human decision-making, the Fed does it’s best to signal future decisions to the market in advance. Create certainty, not surprise. It doesn’t mean that the Fed can’t change it’s mind between now and decision time, but it does mean that the communication strategy can be just as important as the actual rate decision. Lastly, financial markets nailed this one. They have been pricing in multiple interest rate cuts for months, including the first rate cut to happen before the end of the first half of 2024. Everything Powell said last night seems to line-up with the market’s predictions. Crowds can be full of genius or full of madness. Sometimes both. At the moment, it looks like the crowd is going to be right. The various market participants who have been aggressively allocating capital in the last few months in an attempt to front-run the Fed are going to make a lot of money too. After listening to the interview, I have much higher confidence that the Fed will do multiple rate cuts and asset prices will begin climbing again. Remember, markets are forward looking, so some of that price appreciation has already occurred. But if 200-300 basis points of interest rate cuts are coming over the next 18 months, it is hard to see a world where stocks, real estate, and crypto are lower at the end of that timeline. But don’t take my word as fact. There is a lot that could change in a short period of time. Human decision-making is flawed. The Fed over-rotated on loose monetary policy. They will likely over-rotate on tight policy as well. Trying to hit a moving target with backwards looking data is nearly impossible. Powell said it himself in last night’s segment when he claimed “it is not easy to get the economics of this right.” No one feels bad for Powell though. He is the leader of the global reserve currency. There is no room for error, nor is there an opportunity to claim the job is difficult. Results are needed or 300+ million people suffer. Thankfully, it seems more likely Powell and the central bank could pull off the coveted “safe landing” with each passing day. We aren’t out of the woods yet, but to have 3.7% unemployment after 11 interest rate cuts is wild. Let’s see if the Fed can finish their magician trick in the coming months. Jerome Powell ended the interview with the following quote: “Integrity is priceless. At the end, that’s all you have. And we plan on keeping ours.” Even though he was referring to the independence of the Federal Reserve in that comment, it highlights that history will be incredibly kind to Powell if he can get inflation down to 2% without throwing us into a recession. Hope you all have a great day. I’ll talk to everyone tomorrow. -Anthony Pompliano Jay Jog is the Co-Founder of Sei Labs. Sei is the fastest Layer 1 blockchain, designed to scale with the industry. In this conversation, we talk about the evolution of the L1 landscape from Bitcoin, Ethereum, Solana, to Sei, various tradeoffs, use cases, what the L1 landscape looks like in the future, and what Sei does. Listen on iTunes: Click here Listen on Spotify: Click here My Conversation with Sei Co-founder Jay JogPodcast Sponsors
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