evening wrap, june 15
market vibes
a house divided
Tomorrow, the first day of the June Federal Open Market Committee meeting begins at 9:00 AM EDT at the Eccles Building in Washington, DC. It will be watched as closely as any FOMC meeting in history and for good reason.
The FOMC has become a collection of celebrities. Some, past and present, were investigated for insider trading, another for mortgage fraud, and one who remains a voting member despite accusations of and prosecution for lying to Congress under oath.
One former governor in particular traded S&P futures so egregiously that he was asked to resign. He did so for a short period of private life before reappearing as Vice Chairman of one of the leading investment banks on Wall Street. Caesar’s wife and the oldest profession serving their dual mandates.
The meeting tomorrow brings together two competing economic worldviews and goals. One camp, with Powell leading it as a voting Governor, wants unchanged or higher rates. They see persistent inflation risks driven by an oil shock and tight labor markets. Kevin Warsh sees an AI-productivity boom and hedonic disinflation including falling oil prices and an alarming drop in job quality.
In this context the dual mandate is mutually exclusive for both factions. Lower interest rates support maximum employment and a robust job market. They reduce borrowing costs for households and businesses, and make hiring and jobs more attractive. Higher interest rates cap demand and rising wages especially when both prices and wages are falling.
For tomorrow there will be no change in Fed Funds but there will be, in my opinion… a quieter, old-school FOMC style at the press conference, less transparency, limited forward guidance, and fewer rock star speeches.
in the markets
I’ll be brief tonight.
