A Defiant Chairman Powell Cuts Rates | Jack Farley & Max Wiethe

Episode Summary

Executive Summary: The episode dissects the first Fed meeting after Trump’s reelection, arguing it was modestly dovish despite unchanged market pricing. Jack and Max emphasize Powell’s focus on real rates, inflation trends, and labor data rather than politics, while also debating what counts as a Fed “mistake.” They connect the Fed’s stance to a broad stock rally, rising yields, and post-election sector moves, concluding the Fed remains politically independent and likely to cut again in December barring major data surprises.

Main Topics: Fed decision after Trump’s reelection (Priority: 5/5): The hosts argue that the 25 bps rate cut was unaffected by the election and that Powell reinforced the Fed’s independence from politics. Real rates and restrictive policy (Priority: 5/5): A central debate is whether falling inflation makes nominal yields more restrictive in real terms, and whether that justifies continued cuts. Dovish vs hawkish interpretation of the meeting (Priority: 4/5): Jack frames the meeting as moderately dovish because Powell emphasized real rates, a path toward neutral, and flexible easing language. Stock market strength and bond selloff (Priority: 4/5): They discuss the tension between rising equity prices and higher yields, arguing the stock market signals resilience rather than recession. Post-election sector rotation and Trump policy expectations (Priority: 4/5): The conversation covers how banks, small caps, financials, and other risk assets rallied on expectations of deregulation, M&A, and policy shifts. Inflation data, lagging shelter, and real-time measures (Priority: 4/5): Powell’s comments on 3- and 6-month inflation, shelter lag, and insurance costs are used to argue inflation is near target and still easing. Media, consulting, and fund manager business models (Priority: 2/5): Late in the episode, the hosts explain their new podcast network and consulting offering for fund managers seeking media and marketing support.

Key Arguments: The Fed’s 25 bps cut was driven by data, not politics; Powell’s comments showed no election-driven shift in policy. Powell’s emphasis on real rates indicates the Fed still views policy as restrictive and therefore likely to keep easing. The meeting was moderately dovish because Powell used dovish-coded language like “middle path” and discussed real-rate restriction. A rising 10-year yield does not automatically force the Fed’s hand; the Fed focuses on inflation and labor data, not market levels alone. The stock market’s broad rally suggests a soft landing rather than recession, especially with gains across multiple sectors, not just megacaps. Calls that the Fed is making a “mistake” are usually poor trading signals unless the mistake is large and the time horizon matches policy transmission. Lagging inflation components like shelter and insurance are making current inflation look stickier than the more real-time underlying trend. The Fed’s likely December path remains another 25 bps cut unless inflation or labor data materially surprise to the upside. Trump-related moves in banks and small caps make sense if deregulation, M&A, and lower capital burdens materialize, but tariff/inflation effects are uncertain. For investing, valuation matters more for long-term returns than short-term price action; the current market can stay expensive longer than expected.

Data Points: Fed funds rate move: 25 basis point cut - The meeting’s policy decision after Trump’s reelection 10-year Treasury yield: Above 4.4% - Used to discuss rising yields and restrictive policy S&P 500 level: Near 6,000 - Referenced as evidence of a strong equity market rally 2-year Treasury reaction: Essentially unchanged - Jack notes the market did not strongly reprice the meeting December rate-cut odds: Marginally lower after the meeting - CME Fed funds futures slightly reduced the probability of another cut Core PCE inflation: 2.7% year over year - The inflation measure Powell focuses on 3-month annualized core PCE: 2.3% - Powell cited shorter-term inflation momentum as cooler Headline PCE inflation: 2.1% year over year - Used to show inflation is near target 3-month headline PCE annualized: 1.8% - Short-term inflation trend discussed in the presser 6-month headline PCE annualized: 1.7% - Another sign of easing inflation pressure September SEP projected cuts: Two more cuts - Jack references prior Fed projections for the policy path Fed funds range mentioned: 4.50% to 4.75% - Described as the current range after the cut 2022 bond trade: Over 100% gains for some funds - Example of a large successful rates trade when the Fed was behind inflation 2021 inflation peak: 9% inflation with interest rates below 1% - Used as an example of a clear policy mistake trade Stock market performance by sector, Oct 31 2023 to Oct 31 2024: Consumer discretionary +30%, Financials +46%, Industrials +38%, Communication services +43%, Technology +36% - Used to rebut the idea that only Nvidia drove the rally Russell 2000 post-election move: Up 6% on the day - Illustrates small-cap reaction to the election and policy expectations S&P sector breadth: Every sector up on a one-year basis - Supports the claim that the rally was broad, not just concentrated in megacaps

Pivotal Quotes: "I think it was a moderately dovish meeting." — Jack Farley: His bottom-line read on the Fed decision and Powell’s language "The Federal Reserve is an eagle that will pick you up and do whatever it wants with you." — Jack Farley: His argument that traders should not trade against the Fed’s actual policy path "not permitted under the law" — Jerome Powell: Powell’s response when asked whether he would step down if Trump asked him to, underscoring Fed independence

Implications: Listeners should expect at least one more Fed cut unless inflation or labor data surprise. Markets are signaling soft landing, while Trump-era policy could boost banks and small caps. The bigger risk is valuation, not recession.