By Graham Summers, MBA | Chief Market Strategist
The Fed is in the political crosshairs.
As I outlined previously, there is ample evidence that the Fed, particularly Fed Chair Jerome Powell acts in a highly political manner. This runs contrary to the Fed’s proclaimed political independence.
It’s also extremely dangerous.
The Fed is supposed to be politically independent because it is supposed to concentrate on the economy, NOT political agendas. Specifically, the Fed’s Dual Mandate is to focus on maximum employment while acting to ensure inflation doesn’t get out of control. These are objectively economic goals, and should be insulated from an administration’s political agendas, though, obviously every President is going to want to the economy grow.
Unfortunately, the Powell Fed has proven itself to be political to the point of acting AGAINST the U.S.’s economic interests. Some of the Powell Fed’s more egregious political acts include:
- Raising rates aggressively while running large-scale Quantitative Tightening (QT) programs in 2018 while ignoring numerous signals that doing this would result in catastrophe. Later, former Vice Chair Stanley Fisher would admit in an interview that he believed the Fed did this to hurt the Trump administration’s economic agenda.
- Proclaiming inflation to be “transitory” throughout 2021 until Fed Chair Powell was nominated for a second term by then-President Biden… at which point the Fed pivoted and dropped the word transitory from Fed language within a week.
- Cutting rates by 0.5% within 60 days of the 2024 Presidential election… then turning around and refusing to cut rates once Donald Trump won the election, despite inflation being lower and unemployment being higher than it was at the time the Fed implemented the 0.5% rate cut.
- Openly criticizing the Trump administration’s trade war/ tariff policies after refusing to criticize the Biden administration’s extreme fiscal policies which added nearly $10 trillion to the debt in four years.
- Criticizing the Trump administration’s trade war/ tariff policies at a time when the stock market was collapsing and the financial system was looking for reassurance, thereby violating the Fed’s goal of maintaining financial stability.
These items alone are reason enough for the Fed to warrant a political investigation. However, there is another, far more dangerous aspect to what the Fed’s doing.
By refusing to cut interest rates today, despite both inflation and the labor market data matching levels at which the Fed cut rates in 2019 as well as 2024, the Fed is going to cost the U.S. hundreds of billions of dollars.
I’m not writing this for dramatic effect.
The U.S. needs to roll over $9 trillion in debt in the next 12 months. By refusing to cut rates today due to fears of potential inflation from the tariffs despite ZERO signs of inflation reappearing, the Powell Fed is ensuring that the U.S. will roll over this debt at HIGHER rates, resulting in dramatically higher interest payments.
This is setting the stage for a debt crisis. Interest payments on the national debt have already exceeding $1 trillion per year. Indeed, they are the second largest government outlay behind social security. So, the Fed is really playing with fire by refusing to cut rates.
The stage is set for a political showdown… and given how critical the Fed is to financial stability there is the potential for a market meltdown if this situation comes unhinged.
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Graham Summers, MBA
Chief Market Strategist
Phoenix Capital Research
