The Fed Can't Make Up It's Mind On What Interest Rates Should Be
To investors,
As expected, the Federal Reserve cut interest rates by 25 basis points yesterday. Chairman Jerome Powell held a press conference afterwards and he shared information that people on the internet have known for months.
Powell told us “in the near term, risks to inflation are to the upside and risks to employment are to the downside.” Take a listen:
Powell’s posture throughout the press conference seemed to be one of defeat. He did not appear excited to be there, nor did he seem enthusiastic about the challenge he faces.
A very big reason the Fed is in the current situation is because they went from being “data dependent” in past years to economic forecasters more recently. Rather than simply look at the data and manage monetary policy based on the current measurements, the Fed decided to get in the prediction game by anticipating high levels of inflation from tariffs.
As we now know, and as I predicted from the start, tariffs are not inflationary. The sky-high inflation the Fed thought was coming never showed up. This means their prediction was wrong and the monetary policy stance of keeping rates higher for longer was erroneous as well.
But things are even more complicated than they seem at the Fed. There is massive disagreement between the Fed’s Board Governors about where interest rates should be right now. Navy Federal’s Chief Economist Heather Long explains:
“This is wild. Look at the 19 Fed leaders' predictions for interest rates the rest of 2025. You can see the tension at the Fed in just 1 chart.
One wants to HIKE rates, Six think the Fed should keep rates the same, Two favor one additional cut, Nine favor two additional cuts, and then there's the one person (presumably Trump's latest appointee Stephen Miran) who wants the equivalent of five rate cuts by year-end. It's likely we'll get 2 more cuts. One in October and one in December. But you can see the battles ahead...”
Just think about how insane things. Someone wanted to HIKE interest rates yesterday. Someone else wanted to cut interest rates five times before the end of the year. Not only are people disagreeing on how many rate cuts to make, but they can’t even agree on whether we should be hiking or cutting rates.
This highlights the problem with human-led monetary policy. It is impossible to have individuals successfully manage the cost of capital because people are bad at making complex decisions. Add in the fact that we ask a committee of people to do it and you can see why it gets even harder.
Management by committee is a sure fire way to make bad decisions.
But if that wasn’t bad enough, look at this chart of interest rates since 2020. We have been all over the place. How is someone supposed to plan their life around such variability?
It is really hard to navigate the world if the cost of capital can go from 2% to 0% to over 5% and back down towards 4% in the span of 5 or 6 years. Just insane volatility when there doesn’t need to be.
Bitcoin’s monetary policy was set in 2009 and it hasn’t deviated from the programmatic monetary policy for a single second in more than 15 years. There are lessons for the Fed to learn from bitcoin in my opinion.
Lastly, remember the 25 basis point rate cut in 1998 helped kick-off an insane rally in tech stocks during the Dot Com Boom.
As Puru points out, the current situation is eerily similar. The Fed is cutting rates during an innovation boom related to artificial intelligence. If the central bank does multiple cuts this year, as they said they would yesterday, then we should expect stocks to fly higher.
The Fed is behind the curve. They chickened out yesterday and only did a 25 basis point cut. But it ultimately won’t matter for investors. Everything is going higher so just hold on to your assets and enjoy the ride.
Have a great day. I’ll talk to everyone tomorrow.
- Anthony Pompliano
Founder & CEO, Professional Capital Management
Balaji Srinivasan Discusses Bitcoin Shifting The Global World Order
Balaji Srinivasan is an entrepreneur and investor. He is also the author of the Network State and the founder of the Network School.
In this conversation, we talk about geopolitics, what is going on with China, US decline, why India is so important, bitcoin, gold, land, guns, and what is going on with the Network School.
Enjoy!
Podcast Sponsors
Figure – Lowest industry interest rates at 8.91% at 50% LTV and 12 month terms! Take out a Bitcoin Backed Loan today and buy more Bitcoin. Check out Figure and their Crypto Backed Loans! Figure Lending LLC dba Figure. Equal Opportunity Lender. NMLS 1717824. Terms and conditions apply. Visit figure.com for more information.
Bitlayer - Bitlayer is powering Bitcoin beyond just a store of value, making Bitcoin DeFi a reality while staying true to its core principles of security and decentralization. Learn more about Bitlayer at https://x.com/BitlayerLabs
Bitizenship – Get EU citizenship through Portugal’s Golden Visa, maintaining Bitcoin exposure. Book a free strategy call at bitizenship.com/pomp.
Bitwise Asset Management - Crypto specialist asset manager with more than $10 billion client assets and more than 30 crypto solutions across ETFs, index funds, alpha strategies, staking, and more. Learn more at bitwiseinvestments.com
Xapo Bank: Fully licensed bank that integrates traditional finance and Bitcoin. Earn up to 3.9% interest in BTC. Spend globally with a debit card that gives 1% cashback in BTC. Borrow up to $1M instantly with Bitcoin-backed loans.
Simple Mining offers a premium white-glove Bitcoin mining service. Want to grow your Bitcoin stack? Visit Simple Mining here.
Core - Earn trustless Bitcoin yield. No bridging. No lending. Just HODLing. Begin Staking Your Bitcoin.
BitcoinIRA - Buy, sell, and swap 75+ cryptocurrencies in your retirement account. Pay less taxes. Earn up to $1,000 in rewards.
Polkadot is a scalable, secure, and decentralized blockchain technology aimed at creating Web3. Innovation leader, making it a preferred choice for big names.
🚨READER NOTE: If you want to sponsor The Pomp Letter, you can fill out this form and someone from our team will get in touch with you.
You are receiving The Pomp Letter because you either signed up or you attended one of the events that I spoke at. Feel free to unsubscribe if you aren't finding this valuable. Nothing in this email is intended to serve as financial advice. Do your own research.
The Economy is all based on theatre and herding the Masses and Money. Nothing is going to change. Acquire hard assets for the long haul. Long the Stock market. Gamble on AI, Robotics, and Crypto.
Insightful breakdown. The Fed’s challenge reminds me that monetary policy is as much about psychology as it is about data. When the committee can’t agree, uncertainty itself becomes policy—and that uncertainty is costly for businesses and investors.
I agree with your point that volatility in rates makes long-term planning nearly impossible. Stable cost of capital is crucial, and without it, businesses are forced into short-term thinking.
Do you think this unpredictability will accelerate capital into alternative assets (like Bitcoin or private markets), or will equities remain the default despite the noise?