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To investors,

Central banks hate surprises. Their job is to manage the economy through monetary policy, which requires a steady hand. Any surprises in economic data can not only make their job harder, but it also requires a central bank to change policy on a more frequent basis than intended.

This unplanned oscillations in policy create surprises for the market and investors — another thing central bankers hate to participate in.

Financial markets, and the US economy at large, are operating best when central banks can forecast their policy decisions months in advance and then stick to that plan with precision.

This context is why the personal consumption expenditures price index reading this morning was so important. It came in at +0.2% for the last month and +2.5% over the last 12 months. Why does that matter? These results were the exact expectations from the market and the Federal Reserve.

No surprises means the current plan is still on track.

Federal Reserve Chairman Jerome Powell indicated earlier this month in his Jackson Hole speech that an interest rate cut was coming in September. He was careful to call out that any economic data between his speech and the September 18th meeting would have to re-affirm that decision, which is exactly what the PCE data just did.

This increases the odds that a 25 basis point interest rate cut will happen in approximately 3 weeks.

While lower interest rates should bring higher asset prices, the central bank has done a good job tipping their hand to market participants. We are already seeing the rate cut priced into markets. Remember, markets are forward looking, so we should always expect investors to front-run potential developments.

Certainty is the best friend of a central banker.

They got more of it this morning, which should be good news for investors going into the last few months of the year. Cheap capital is coming and the money printer will be turned back on. The dollar is going to be devalued. Asset prices will go up. And unfortunately, the wealth inequality gap is only going to get wider.

We can complain about the situation — nothing will change though. The best thing you can do is position your portfolio to benefit from the inevitable.

Hope you all have a great holiday weekend. I will talk to everyone on Tuesday.

-Anthony Pompliano

Founder & CEO, Professional Capital Management

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Polina Pompliano, Author of ‘Hidden Genius’ and Founder of The Profile, and Anthony Pompliano, CEO of Professional Capital Management, discuss the US economy, interest rates decision, taxing of unrealized gains, arrest of Telegram CEO, the impact of the two astronauts stranded in space, and more. 

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Anthony & Polina Pompliano Discuss Taxing Unrealized Gains and Interest Rate Cuts

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