Biggest Takeaways From The Fed Interest Rate Decision | Bob Elliot

Episode Summary

Executive Summary: Bob Elliott argued the Fed’s latest 25 bp cut confirms an “over easy” policy regime: Powell believes inflation is basically beaten and rates are still restrictive, so more cuts are likely despite solid growth, a strong labor market, and rising long yields. Elliott expects continued easing, global central banks to follow similar paths, and favors stocks plus gold over bonds.

Main Topics: Fed rate cut and policy direction (Priority: 5/5): The 25 bp cut was expected, but the key takeaway was Powell’s confirmation that the Fed remains on a path of further easing rather than pausing. Whether policy is still restrictive (Priority: 5/5): Elliott argued the Fed’s view of neutral is too high and that rates near current levels are not meaningfully restrictive when judged against GDP, income, and nominal growth. Inflation outlook and Powell’s framework (Priority: 5/5): Powell was portrayed as overly convinced inflation is already at 2%, using selective short-horizon core PCE readings and downplaying contrary evidence. Long bond yields and QT (Priority: 4/5): Rising long yields were framed as a natural outcome of easing into a strong economy, plus some election effects; QT was seen as an additional subtle easing if it ends soon. Labor market strength (Priority: 4/5): The labor market was described as strong rather than weak, with Powell using 2019 as a reference point while Elliott argued today’s wage and price levels make that comparison misleading. Election, fiscal impulse, and Fed independence (Priority: 4/5): Powell emphasized that future Trump policies won’t matter until enacted, while Elliott warned that a mix of monetary and fiscal easing could amplify inflation later. Asset allocation and global context (Priority: 4/5): Elliott favored stocks and gold in an easy-money environment, warned against chasing tight credit spreads and carry trades, and noted a broad global easing cycle.

Key Arguments: The FOMC cut 25 bp as expected, but Powell’s press conference signaled that additional cuts are likely and not far away. Elliott believes the Fed’s definition of neutral is flawed; empirically, policy around 5% has coincided with stable real and nominal growth. Using real rates versus CPI is a poor way to judge restrictiveness; income, revenue, and profit growth are better benchmarks for borrowers’ ability to carry debt. Powell appears anchored to the belief that inflation is effectively at 2%, and may need substantial contrary evidence before changing his mind. The long end of the curve has risen because the Fed is easing into a relatively strong economy, which historically pressures bonds and favors stocks and gold. QT matters more than the Fed admits; ending balance-sheet runoff would be another marginal easing impulse. Powell’s position is that proposed Trump policies should not affect the Fed until they are implemented and felt in the data. If fiscal and monetary easing both continue, inflation pressure may not show up immediately, but the combined impulse could become visible over the next 6-12 months. The Fed has the tools to fight inflation if needed, but the real question is whether it has the fortitude to use them. Credit spreads are tight and carry trades are crowded, so leverage can work until the cycle turns and investors are exposed.

Data Points: Fed funds cut: 25 bps - FOMC decision discussed at the start of the interview Expected odds of another December cut: ~75% - Host referenced market pricing after the meeting Cumulative cuts priced over next 6 months: ~75 bps - Elliott’s estimate of the near-term forward curve Cumulative total cuts priced including today: ~100 bps - Elliott’s reading of the market path Cuts priced since September: ~150 bps - Elliott referenced September meeting pricing Core PCE annualized: ~2.3% - Powell’s cited short-horizon inflation measure Headline/yr-over-yr inflation: 2.7% - Elliott cited current inflation against Powell’s 2% view Real GDP growth: 2% to 3% - Elliott used recent growth as evidence policy is not highly restrictive Nominal GDP growth: 5% to 6% - Used to argue rates have been compatible with stable activity Long bond yield / 10-year: ~4.4% - Referenced as current long-end level after yields rose Labor market reference: 2019 - Powell compared current labor conditions to pre-pandemic levels Prime-age employment: 25-year highs - Elliott used this to describe labor market strength Nominal wage growth: ~5% - Used to argue labor costs can sustain inflation pressures U.S. crypto assets secured by Ledger: 20%+ - Sponsored segment, not part of the macro discussion

Pivotal Quotes: "data or prudence be damned." — Host: Reaction to the Fed continuing down its easing path despite mixed macro signals "the reaction function is despite a strong economy, cuts are coming ahead" — Bob Elliott: Summarizing the Fed’s post-meeting stance "fuck valuations." — Bob Elliott: Bottom-line macro investing advice given the persistence of easy money

Implications: Listeners should expect continued Fed easing, a potentially supportive backdrop for equities and gold, and pressure on duration-heavy bond exposures. If fiscal stimulus and easing both persist, inflation and yields could reaccelerate later.