To investors,
Jerome Powell and the Federal Reserve are poised to make their first interest rate cuts of the year later today. Are they behind the curve? Of course. Have people lost confidence in the Fed? Obviously.
But we have finally arrived at the big day for the central bank to capitulate. They have been gaslighting the American people for months by predicting sky-high inflation, which was their main reason for not cutting rates.
But that prediction never came true. Inflation is much lower than they thought. Shelves are not empty. There was no recession or Great Depression.
Unfortunately, the labor market has deteriorated in the meantime though. We have seen sluggish payroll growth, coupled with recent downward revisions to employment data, so the Fed now has no choice but to cut rates. They can’t abandon one of their core mandates of ensuring maximum employment.
Let’s unpack the horrible, no good labor data right now:
July and August employment data came in under expectations
The recent job revision removed 900,000 jobs that previously were thought to have been created over the past year
Unemployment has been slowly ticking higher
June’s data showed an outright job loss for the first time since 2020
So the picture is very clear — the labor market is screaming at the Fed to cut rates immediately.
This brings us to the Fed’s second mandate of maintaining stable prices. Remember that concern they had about inflation? It was dumb. We never saw the runaway inflation they were worried about and we are not going to see it from the tariff policies.
Inflation, which is basically at 2% according to Truflation, is telling the Fed they have the green light to cut interest rates.
Now here is the thing…there are people who are worried a rate cut will drive inflation to concerning levels, but these people don’t realize how deflationary tariffs and artificial intelligence have been to the economy. The Fed can cut aggressively without worrying about inflation spiking.
So this brings me to how aggressive the Fed should be in their rate cut today. The market is pricing in a 25 basis point cut. That’s an interest rate cut for ants. Let’s not play little kid games here. The Federal Reserve should cut 50 basis points and show the market they are serious about stimulating the economy.
This larger cut would immediately surprise the market into a bullish position, including stimulation to the job market. Companies would increase their spending on R&D. GDP would accelerate. And inflation would not increase because of the deflationary nature of tariffs and AI.
You don’t get the intended impact of interest rate cuts if you simply do what the market is expecting. The 25 basis point cut is priced in. The Fed needs to run a shock and awe campaign. Shake every nerd on Wall Street into believing the central bank is here to stimulate activity. Cut 50 basis points. Make the press conference a fireworks show.
Send the stock market shorts crying. And get the US labor market running hot again.
It is time to bring liquidity to the market, Jerome. Don’t let us down.
- Anthony Pompliano
Founder & CEO, Professional Capital Management
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