Pro Perspectives 8/14/25

 

 

 

 

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August 14, 2025

Today, we had one of the more talked about producer price reports in recent memory.
 
That said, the hotter PPI numbers will have little effect on the Fed's most important inflation data point, when it's reported at the end of the month.  
 
June PCE was 2.6%.  And with components of CPI and PPI now in, July headline PCE (which is the stated measure for the Fed's 2% inflation target) should be little change from last month (around 2.6%).  
 
Here's what that looks like relative to the past twenty-four months …
 
 
So, the media spent the day touting the PPI report and pushing back on Trump's campaign for rate cuts.  But the interest rate market continues to price in a September cut, and about a coin flips chance for three by the end of the year.
 
With that, the annual economic symposium in Jackson Hole is a week away, and has historically served as a platform for central bankers to communicate important signals regarding policy adjustments. 
 
Jerome Powell is on the calendar for Friday, August 22nd, to give a speech titled, "Economic Outlook and Framework Review."  
 

Pro Perspectives 8/13/25

 

 

 

 

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August 13, 2025

Trump and Bessent have amplified the "shadow Fed" in recent days by identifying a long list of Fed chair "candidates" that are now credible voices on monetary policy.

 

We've talked about names like Kevin Hassett and Kevin Warsh in recent weeks, and now we're hearing from others — all are publicly articulating the case for lower rates.

 

Reported candidate Rick Rieder, Blackrock CIO, said the Fed could afford to get rates down by 100 bps quickly. 

 

Candidate Jim Bullard, former Fed President, said rates could be 100 bps lower by this time next year (a statement that probably doesn't get him the job).

 

Reported candidate David Zervos, strategist at Jeffries/former Fed economist, said there's a case for significant rate cuts, and even suggested the Fed should re-examine their decision to hold, given the new information on the labor market (implying an intermeeting cut). 

 

And Scott Bessent himself, the Treasury Secretary, who maybe has the most powerful opinion on who will become the next Fed Chair, said today that the Fed is behind, based on the soft labor data, and "could" start with a 50 bps cut in September.  And he said we should probably be 150-175 basis points lower.

 

And remember, Trump has said many times over the past month that rates should be much lower, like 3 points lower (close to 1%).

 

His argument is that U.S. rates should be the lowest in the world, because it's the safest, most liquid borrower in the world, with the reserve-currency, rich asset base and perfect debt-service record.  

 

This hasn't been taken seriously, but maybe it should be — because it's the President, reframing the Fed's mandate to permanently price U.S. short term borrowing off its hegemonic credit profile. 

 

Pro Perspectives 8/12/25

 

 

 

 

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August 12, 2025

The inflation data this morning did not support Jerome Powell's assertion that tariffs are a new source of inflation.
 
With that, and given the cracks in the labor market, this environment where fiscal and industrial policy has a foot on the gas pedal, while monetary policy has had a foot on the brake, is about to change.
 
The market reaction the inflation report was decisive.  The S&P 500 and Nasdaq closed on new record highs.  And small caps had a huge day.
 
The Russell closes today just shy of the big 2300 level. 
 
As you can see in the chart below, we've tested this level a few times over the past month and failed.  And if you look to the left, this is the level from which things broke down in late February.  
 
That big decline was triggered by a weak University of Michigan report — on "tariff and inflation fears."   
 
 
This started a 24% correction over about six weeks, which, of course, culminated with the official launch and then pause of tariffs.
 
So, now we're back to this key technical area.  The markets now have clarity (at least, visibility) on policy.  Inflation has not reignited.  And the trade deal deadline that really matters, with China, has been pushed for another 90 days. 
 
This is a greenlight for this index to return to record highs (8% higher) and beyond.
 

Pro Perspectives 8/11/25

 

 

 

 

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August 11, 2025

We get CPI tomorrow.
 
But after the big jobs revisions earlier this month, the employment side of the Fed's mandate is becoming the focal point for the Fed.
 
Over the weekend, Fed Governor Bowman — who voted for a cut in July — said as much: "with underlying inflation on a sustained trajectory toward 2%, softness in aggregate demand, and signs of fragility in the labor market, I think we should focus on risks to our employment mandate."
 
That said, the consensus view on CPI tomorrow is for a slight uptick. 
 
Given the events surrounding the Fed over the past month, if it comes in cooler, expect the (relative) inflation hawks at the Fed to start signaling the resumption of the easing cycle.  One is on the calendar to speak tomorrow afternoon.
 
On the Fed chair search, it was reported today that the Trump team (led by Bessent) is widening the candidate list. Bowman was among those named.  But also named were two Fed officials that are (relative) hawks.  This looks like Bessent is taking the opportunity to use the interview process as an excuse to get one-on-ones with current and soon-to-be Fed voters.  Smart. 
 
Q2 earnings season is almost done.  We headed into it with the market looking for 4.9% earnings growth.  We're coming out north of 11%.
 
What about margins, in a world spooked by tariffs? 
 
Profit margins broadly expanded, across the majority of sectors, at 12.8%.   That's better than last quarter, better than the year ago quarter, and better than the 5-year average.
 
Add to that, we have pro-growth tax and industrial policy.  We have regulatory relief in the Treasury market.  We have a resumption of the easing cycle coming in this second half of the year.  And the infrastructure buildout to support the technology revolution is just getting underway.
 
On the fiscal side, the tariff revenue is on a pace to reduce the budget deficit by 1 full percentage point. 
 
And a full point cut in the Fed Funds rate, which would materially lower interest costs, would lower the deficit by another full percentage point — taking it to the low 4% area.  The 50-year average is 3.7%.
 
So, we have a formula for higher growth, higher revenues and lower costs, which drives down debt-to-gdp.     
 
The U.S. economic position, relative to the rest of the world is getting very strong. 
 
That's pro-global capital inflows, pro-dollar assets.          
 

Pro Perspectives 8/7/25

 

 

 

 

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August 7, 2025

Trump announced this afternoon that Stephen Miran will take the Fed seat vacated by Adriana Kugler.
 
We've talked a lot about Miran's paper on restructuring global trade.  He's Trump's Chairman of the Council of Economic Advisors, and he wrote the blueprint for the tariff strategy. 
 
And most recently, we've talked about his view on the role of the exporting country's currency in absorbing the tariff blow.
 
In short, exporters devalue, their goods stay competitive, U.S. consumers avoid price hikes — and the pain hits the foreign economies via loss of global purchasing power and real wealth.
 
That's the "burden sharing" that is core to Miran's strategy to realign global trade.
 
So, clearly this view is that tariffs are not inflationary. 
 
With Miran, Trump has not just replaced a monetary policy hawk (in Kugler) with a dove (in Miran), but the architect of the tariff policies will now be inside the Fed.
 
This is a step toward aligning the Fed with the Trump trade and industrial policy.
 
For markets, it should be a green light for assets that benefit from the U.S. policy position of strength (relative to trading partners):  commodities (on tighter supply and global currency pressures), small caps (protected by tariffs), gold (as global currencies devalue) and industrials (on reshoring).

Pro Perspectives 8/6/25

 

 

 

 

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August 06, 2025

Trump said today he's looking to name a temporary Fed governor, then a permanent one, for the seat to be vacated by Kugler on Friday. 
 
That said, here's what he could do to immediately neuter Powell, and accelerate the easing path. 
 
He could appoint his current National Economic Council Director, Kevin Hassett (his loyal, aligned guy), to fill Kugler's seat.
 
And instead of waiting months for a Senate confirmation hearing, he could install him immediately, via a recess appointment. 
 
Then, declare him the Chair-in-waiting.
 
That would instantly shift power away from Powell, both inside the Fed (where Hassett would have a vote and significant influence) and outside of the Fed, where markets would begin taking cues from the next Chair. 
 
Then Trump could line up a nominee like Judy Shelton for the seat Hassett ultimately vacates to become the official Fed Chair. 
 
A maneuver like this would quickly swing the market view on the rate outlook, and signal the Fed regime change is underway.
 
 

Pro Perspectives 8/5/25

 

 

 

 

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August 5, 2025

We've talked about the "shadow Fed" that has emerged over the past month.  With that, despite a 9-2 vote in favor of holding rates last week, the market is now beginning to price in the chance for three quarter point cuts by year end.  
 
And the 9-2 vote to hold rates steady last week would have been 10-2, had Fed governor Kugler voted.  She was "absent" — didn't vote.  And two days later handed in her resignation. 
 
With that, Trump will get to nominate a new Fed governor.  And he says he will name his Fed Chair nominee, to replace Jerome Powell, by the end of the week. 
 
The current National Economic Council Director, Kevin Hassett, has become the favored pick in the betting markets. 
 
Hassett makes sense.  He's already inside the White House.  He's a trusted member of the Trump team, and has the respect of Trump and Scott Bessent.
 
As for Kugler's replacement, it may be Judy Shelton.  If so, that would signal to markets that Trump is looking to overhaul the Fed — true regime change.
 
She's a Fed reformist.  Her views align closely with Bessent's "Fed review" initiative.  She's also aligned with Bessent's Main Street over Wall Street focus.  She's a sound money advocate.  And she opposes use of tools like QE and forward guidance.
 
On the latter, this is where it gets interesting in this Fed regime change story.  
 
It's important to note, since the Great Financial Crisis, the major global central banks have done nearly everything in coordination.  And they continue to coordinate and collaborate.
 
It's the only way that a major economic price wasn't paid for the global fiscal profligacy that led to the financial crisis (consumer, business and sovereign).  They've absorbed the shocks with QE, and with whatever forms of intervention have been necessary.  And they've had each others backs — importantly, led by the Fed.
 
So, the post-GFC central banking policy is well described in this graphic …
 
 
 
Central bank intervention, in the name of "maintaining stability in the financial system," has only led to more control and more intervention by central banks – a never ending game of plugging new leaks in the global financial system.
 
With this in mind, a regime change at the Fed would mean the era of coordinated global monetary policy is likely over.
 
With that, the focus would quickly turn to Europe, where fragile sovereign debt markets have been explicitly backstopped by the European Central Bank since the summer of 2022.
 
If the Fed no longer has the European Central Bank's back, then the ability of the ECB to backstop European sovereign debt will be tested.
 
And it probably won't go well.  Remember, these EU member states have large scale deficit spending coming down the pike, to fund defense and AI commitments.  And the ECB will be, almost certaintly, back in action to tame the bond yields of the fiscally vulnerable countries.  Without global coordination, the will lack the firepower.    
 

Pro Perspectives 8/4/25

 

 
 

 

 

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August 04, 2025

In my last note, we talked about the setup going into the jobs report.

It looked very similar to the jobs report of a year ago (July 2024):  Inflation in the mid-2s, the job market showing “cracks,” and a Fed stubbornly holding policy too tight.

Like last July, we got a negative surprise this past Friday.

Like last July, we got negative revisions.

And like last July, we got a breakdown in stocks.

And like last July, the short end of the interest rate market (2-year yields) repriced (lower) by 25 basis points, conveying the message to the Fed that, once again, it made a policy mistake.

But we get a bounce back in stocks today, for the reasons we’ve been discussing over the past month.

Those reasons:  The Trump administration has effectively diminished the voice of the Fed, by elevating a “shadow Fed” — a lineup of Trump-aligned Fed Chair candidates that have already openly signaled future monetary policy to markets (i.e. significant easing).

Let’s talk about the revisions …

See the bold numbers in the table above:  Not only did the July payroll number undershoot expectations, the prior two months had huge downward revisions.

What’s all the fuss about?

The Bureau of Labor Statistics (BLS) has overshot job growth on its initial report seven consecutive months — nearly half a million jobs.

The result has been, fiscal and industrial policy with a foot on the gas pedal, and monetary policy with a foot on the brake pedal.

Is this just coincidence that the revisions have been in one direction, and that the initial reports have served as a headwind to the Trump administration?  Or is it political?

To answer that, let’s revisit the analysis we’ve done on this topic.

As we’ve discussed over the past four years, the Biden BLS had a record of making large revisions in the jobs data which led to very consequential misreads on the health of the economy by policymakers.

Here’s a look at 2021 … 

 

As we know, the inflation fire was burning in 2021, driven by the textbook inflationary ingredients of a massive boom in the money supply.  Yet the Fed continued its emergency monetary policies all along the way (zero rates + QE), dismissing the rise in prices as “transitory.”

And Congress used the Fed’s assessment to rationalize even more fiscal spending (more fuel for the inflation fire).

How could the Fed justify its claim that inflation was “transitory?”  A relatively modest job market recovery.

But as you can see in the table above, it turns out that the BLS revised UP eleven of the twelve months of nonpayroll numbers in 2021.

The initial monthly reports UNDER reported job creation by 1.9 million jobs for the full year.

So, the economy was a lot hotter than the Fed thought.

And as we know, the Fed was wrong on inflation, and well behind the curve in the inflation fight.  It was a mistake that did considerable harm.

Now, let’s look at 2023 … 

Remember, the Fed continued raising rates through July of 2023.  And along the path of its tightening campaign, the Fed was explicitly trying to slow the job market.

What did the BLS do along the way?

They OVER reported job creation.

As you can see in the table above, the BLS later revised DOWN ten of the twelve months of payroll numbers in 2023.

The job market was not as hot as the Fed thought from initial reports.

As a result, they unnecessarily throttled economic growth.

That brings us to last year.

The Fed stubbornly held policy at historically high real rates for twelve consecutive months, even as inflation was sharply falling — back into the 2s.

Along the way the Fed explicitly cited “cracks” in the job market as a condition to start the easing cycle.

Then in August, the BLS ended up making a massive one-off adjustment to the payroll numbers.

The annual revision of 818,000 jobs was the largest negative one-off adjustment since 2009 (the depths of the financial crisis).

This is what the adjustment looked like in a chart …

 

In short, the initial payroll numbers were overstated by an average of 100,000 jobs a month.

What does it all mean?

From the unreliable jobs data, it means we got reckless fiscal spending in 2021, when the economy was already running hot/ inflation was already on fire.

And then, later, we got all of the debt from the trillions of dollars of government spending, and a devalued dollar, but only a fraction of the economic growth — because the Fed had its foot on the brake, with an inaccurate picture of the health of the economy.

Bottom line:  The events of the past month have damaged the Fed’s credibility, and the reliability of the data they claim to be ‘dependent’ on.

That said, regime change appears to be coming.  And the markets should be favorable to an outlook where monetary policy soon aligns with fiscal and industrial policy.

For my AI-Innovation Portfolio members, please keep an eye out for a note from me tomorrow.  We will be making a new addition to the portfolio.  If you’re not a member, you can join us here.

 

Pro Perspectives 7/31/25

 

 

 

 

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July 31, 2025

We get the jobs report tomorrow.
 
As we discussed in my Tuesday note, it was a year ago that the Fed stubbornly held rates steady for a twelfth straight month, into a jobs report.  That report came in weak, with only 114k jobs created, and was accompanied by a downward revision to the prior month (which was a trend).
 
Stocks broke down.  And that flipped the script on Fed policy.  A few weeks later, Jerome Powell went to Jackson Hole and declared it "time for policy to adjust."  Again, the jobs growth was persistently slowing, and the Fed's favored inflation gauge (PCE) was 2.5%.
 
We head into tomorrow's jobs number with similar conditions.  Jobs growth has been slowing.  PCE is 2.6%.  
 
If we look at jobs, the average job growth during Trump's first term, into a tightening Fed, was 176k.  The late 90s internet boom average monthly job creation was 243k.  For the past six months, the jobs growth has averaged just 130k.
 
With that in mind, both the Nasdaq and S&P 500 futures printed new record highs today, following some very strong big tech earnings.  But the day ended with a bearish reversal signal (an outside day), on the highest volume since April 10th.    
 
 
That April 10th date is significant, because it was the day following Trump's official 90-day pause on tariffs. 
 
And that 90-day pause was the bottom in stocks. 
 
Not coincidentally, this reversal signal today comes as broad tariffs go live tomorrow.
 
That said, the big unknown heading into tomorrow, is whether or not Trump will extend the timeline with China.  And given that big deals have been made with Europe, Japan, and an extension has been given to Mexico, the unknown surrounding China is a problem for stocks.
 
As we’ve discussed over the past several months, it seems obvious that the only way to resolve the China problem (i.e. its multi-decade predatory export model) is through a globally coordinated agreement with trading partners, to put China in the global trade "penalty box" (to isolate China).
 
And it appears now that it might be accomplished through secondary tariffs.  If China continues buying sanctioned Russian oil (which they will), the Western world will likely soon be pressured by Trump to impose large (triple digit) tariffs on China.  
 

Pro Perspectives 7/30/25

 

 

 

 

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July 30, 2025

After a month of relentless pressure from Trump to cut rates, the Powell-led Fed held the line again today (despite two dissenters).
 
That's seven consecutive months on hold.
 
And in the press conference, Powell dug in.  This wasn't about signaling a September rate cut and resumption of the easing cycle.  It was closer to a counterattack on the Trump pressure campaign.
 
A month ago, Powell said they expected tariffs to show up in goods inflation over the summer. The Fed’s messaging was centered on “uncertainty.” They were in wait-and-see mode.
 
Today, not only did he say the tariffs are definitely in the data, he implied that the tick higher in inflation would have been worse if not for the Fed's restrictive policy stance. 
 
He explicitly said, "we have three or four tenths" of core inflation, from tariffs.  And he said, "you could argue we are looking through goods inflation by not raising rates (!)."  
 
So, Jerome Powell sat in a room for two days with two colleagues that made the case to cut rates today, and still came out with this message:  Tariffs are a new source of inflation. The current restrictive stance is preventing a worse inflation outcome.  No pivot.
 
With that, the ball goes back into Trump's court.  Will he escalate the threats to fire Jerome Powell?  Likely.