A topic that really shook the markets. Because Jerome Powell, the chair of the FED, came out and told us… EVERYTHING. And not only did he say it, he said it in a way that left us speechless.
From inflation and unemployment, to how “expensive” he thinks stocks are, the future of artificial intelligence, and even the role of tariffs in the economy.
INFLATION VS UNEMPLOYMENT
Powell went on stage in Rhode Island and started with something that to many sounded almost… comical.
The risks are twofold. On the one hand, inflation might rise. On the other hand, unemployment might worsen. So, there is no risk-free path.
What is the man really telling us? If we cut rates, it’s a risk. If we don’t cut rates, it’s still a risk. So we’ll see.
Classic Powell. The absolute definition of “wait and see.” Neither right, nor left. No step forward unless the data say so.
THE IMPATIENT ONES INSIDE THE FED
And while he’s stepping on the brakes, there are others inside the FED who aren’t just hitting the gas, they’ve basically set cruise control to “CUT RATES NOW and we’ll see later.”
Stephen Miran, the only one who dissented in the meeting, came out and said:
Rates are TOO high. They need to be cut by a full 2 percentage points. If we keep going like this, we’ll see unfair layoffs and rising unemployment.
Meanwhile, Michelle Bowman added:
The labor market is showing signs of weakness, and we need to act quickly.
As you can understand, the climate inside the FED isn’t exactly unanimous. It’s more like… a Sunday family dinner when politics comes up.
And just when you think, Okay, everyone has internal disagreements, Powell drops the bomb:
Stock prices are high. Valuations are inflated. But there’s no risk.
And that’s where Ed Yardeni, a legendary Wall Street analyst, reminded us of Greenspan’s Irrational Exuberance speech before the dot-com bubble in 2000—and compared it to Powell’s talk.
When someone tells you ‘I don’t see any risk,’ that’s when you SHOULD start worrying. Because financial crashes are always black swans. Nobody ever sees them coming.
Is disaster coming? NO! Stay calm. After all, for months now everyone’s been talking about disaster, and no disaster has shown up.
At least Powell admitted (without speaking in riddles) that:
(a) AI is a huge technology, but we still don’t know how it will affect the economy,
(b) job creation has dropped below breakeven, and
(c) tariffs and political uncertainty are weighing on the situation.
And although tariffs haven’t yet shown a big impact on inflation, Powell leaves the door open that they might continue to affect it well into 2025.
