Raw Transcript: Fed's Latest Surprise Will Shock Economy | Danielle DiMartino Booth

Today, the Federal Open Market Committee decided to lower our policy interest rate by a quarter percentage point. We also decided to conclude the reduction of our aggregate securities holdings as of December 1. Danielle D. Martino Booth, CEO of Qi Research, returns to the show. We'll be uh going over what happened today with the Fed and what's next. Welcome back, Danielle. Good to see you. Happy Fed day. Uh you must be uh you must be exhausted. It's been a busy day. It has been a busy day and I you know I thought it was going to be a boring day but I I think Jerome Hayden Powell had something else to say about how boring this Fed meeting was supposed to be. Two descents uh we had Steven Moran who wanted uh who wanted uh 50 basis points but we had another governor who uh the Kansas City Fed president actually wanted to uh stop rate cuts altogether. That was interesting. Yeah, he did. He wanted he he wanted to pause the rate cuts and you say to yourself, well, okay. Um, so he's he's a fairly new president. Uh, we've known that he's been concerned about inflation, but not to a great extent. He he's not some kind of a media hound. uh his his final vote is on December the 10th and then he kind of goes into a vacuum for three years because it's a every three-year rotation for these regional Fed presidents aside from the New York Fed who has a permanent vote every single FOMC meeting and then Cleveland and Chicago they rotate every other year kind of because what the US economy was like in 1913 when Cleveland and Chicago were considered to be the second and third most important economies in the United states. Um but every other of the 12 uh um Federal Federal Reserve district presidents only gets to vote every 3 years. So you're like, well, did he want to be remembered as a hawk because we're not going to hear from him again for a few years? I don't know. It was very curious because the only piece of official data that's come out for the Fed has been a consumer price index, a CPI report that was for for September that was a heck of a lot cooler than what was expected. Yes. And I'll get to the CPI in just a minute. But this is the uh probability of a cut by December now. And before today's meeting, it was at 90 something%, now it's at 66. And this comes after PAL's statement that uh the uh December cut is not a foregone conclusion. Uh this signals one of two things. One, that it's not a foregone conclusion. Pretty straightforward. But two, that he's probably going to stay on until at least December. Because if the next FEP governor were to replace or chair rather were to replace him by December, his first course of action would probably be to cut rates, but that's not what's happening right now. So, he's signaling two things. How are you interpreting this? Um, well, um, you know, David, I've never um I've never heard Chair Powell indicate that he plans has any plans on leaving as of May when his term is up. Um, you know, we Treasury Secretary Scott Bessent has told us that it's his goal to have um Powell's successors named by sometime around Thanksgiving. Uh, you know, so if that does happen, um, then we may know who's going to replace Powell in May. But no, he'll he'll be around until then. And in fact, if if the members of the Federal Open Market Committee choose to elect Powell, regardless of who Trump puts in his place, the only person Trump can appoint is the chair of the Federal Reserve Board. The Federal Open Market American Committee is a much larger entity and should they decide to vote to keep Jerome Powell in place after his Fed board chair term is up in May, we could see him at every single Fed meeting behind that podium through January of 2028. Well, here is what he had to say about how the shutdown affected the FOMC decision today. Take a listen. I just want you to elaborate a little bit on what you said a moment ago about about the lack a continued shutdown making it more difficult to make a move in December uh and that may make you more cautious to the degree you are relying on private data that isn't the gold standard or that you're relying on your own surveys or the beige book. Do you worry at some point you're going to have to start making policy by anecdote? This is a temporary state of affairs and you know we're going to do our jobs. We're going to collect ev every scrap of data we can find, evaluate it, and think carefully about it, and that's that's our job. So, that's what we're going to do. Could it affect the the um you know, the December meeting? I'm not saying it's going to, but yeah, you could imagine that that you know, what do you do if what do you do when if you're driving in the fog? You slow down. So, that that could or could not. I don't I don't know how that's going to play into things. Um we may get the data may come back, but there's a there's a possibility that it would make sense to be more cautious about moving. Sounds like he's blaming Congress for potentially slowing down the rate pace of rate cuts. Well, um there's a certain irony in there somewhere, I think, David. Um or at least poetry. Uh but the fact is and I think that I I think that market participants understand this very well that there have been so many layoffs that have taken that have taken been just huge headlines in the last few weeks that Powell can choose to hide behind as as an excuse uh putting in turn more pressure on the administration to reopen the US government. That's in and of itself a political stance to take. Uh if he wants to go that direction, that's fine. He can. But I think back here on planet Earth, the rest of us know what's happening in the real economy without needing official government data just because of the marquee headlines that we're seeing about layoffs. Before we continue with the video, let's talk about our sponsor today, ODU. ODU is an all-in-one business management platform trusted by over 15 million users. But today I want to highlight their website builder. It lets anyone, even without coding skills, create a professionallook website. Just drag and drop blocks, customize layouts, add animations, and launch. You can build anything from a personal blog to a full e-commerce site with secure checkout and payment integrations. It's also fully integrated with other odo apps, so your website connects directly to your sales, inventory, and customer data. That means less manual work and more time focused on growth. And like always with ODU, your first app is free for life, including unlimited hosting and support and a custom domain name for one year. To start building your site with ODU today, check out the link in the description down below to try ODU and simplify your business operations. There's another issue which is quantitative tightening um which is different from just rate cuts. As you know, the Fed's taken the uh balance sheet uh from 9 trillion all the way down to I think 6.6 trillion. Correct me if I'm wrong. Now, we have uh this trend that's ongoing. What's next for the Fed's balance sheet? So, what we're going to see uh as of December the 1st, so November is the last month that we're going to see five uh billion dollars of treasuries roll off the Fed's balance sheet. After which point, um it's going to stop rolling any maturing treasuries off of the balance sheet. And to the extent that they do mature, they will be replaced by fresh purchases to maintain the size of the Fed's balance sheet going forward. In addition to that, and I I can already hear the it's QE. In addition to that, for every every month that that continues, if the Fed is able to roll off $35 billion of mortgage back securities every month, um then they will be able to reinvest that as well into treasuries. A question was asked by a reporter which is that AI investments and capex is already boosting the economy and to some extent maybe the markets. There's a big investment boom in AI infrastructure right now as you know and wondering if the existence of such a boom uh would indicate that rates are not that restrictive after all and could further rate cuts at this point perhaps fuel an excess level of investment there or uh market bubbles. big US companies are just investing a lot of resources in thinking about how AI is going to affect their businesses. So it's a big deal. I don't think that the spending uh that happens to build data centers all over the country is especially interest sensitive. It's based on longer run it's you know longer run assessments that this is an area where there's going to be a lot of investment and that's going to drive higher productivity and that sorts of things. I don't I don't know how those investments will work out, but I don't think they're particularly interest sensitive compared to some of the other sectors. Adding more liquidity in the system that may actually cause an inflation problem. What do you think? It's um it's it's a fairly flimsy argument. Um I mean, don't get me wrong, the stock market is at all-time highs, at least Nvidia is. And so that the wealth effect for the top 10% who account for 50% of spending, whatever, it's it's there if you want. Uh but for everybody else, there really is no inflationary impulse and nor will a 25 basis point rate decrease somehow ignite inflation in the absence of purchasing power for you know the other 90%. In your opinion, let's not let's take the Fed out of this equation. In your opinion, should rates come down? Uh speaking on behalf of small business men and women across America, yes, they should. He did. POW did say and he was asked this when rates come down does that affect the bottom tersile of the income distribution or the wealthier more and he said that typically when rates come down you see a bigger impact on um on the middle class in the bottom half of the income distribution is that true well let's see now the Fed has started to lower interest rates and markets move in anticipation of the Fed lowering interest rates but I think I read just yesterday that Automobile borrowing loan rates um were near record highs. Uh I don't think credit card borrowing rates have come down, but near a tick or two. They're near record rates. Uh mortgage rates went up after the Fed's announcement today. Um maybe Chair Powell just needed to check the markets after he got off the podium. Okay. Uh what now could stop this market rally? Now, we've talked about this several times in my show, how the market may be disconnected from the economy. Um, I wonder if it still is, but more importantly, I wonder what could stop this trend now that we've got a Fed pivot in motion. You know, I think the one thing that that could that that could make the market stall would be a slowdown in passive inflows that come into the market every single day. Um, you know, absent that, especially with the highest flyers, I I see very low probability that much is going to slow down this rally in the stock market. We're going to have hiccups here and there. Um, and I certainly do think that if the economy uh if if if the recession that the economy is in is recognized, then we could certainly have a pullback in the stock market. But for the moment, as I say at Infinitum on my Twitter feed, the flows know and right now the flows go in. That means they buy the biggest market capitalization stocks. Right now, we're seeing a few trends like you said, layoffs happening in the last month. Amazon cut up to 30,000 jobs. Uh host of other tech companies laying off people. uh they're citing automation as a reason. On the other hand, we've got some other companies like Home Depot, for example, instituting price cut uh price hikes right now. And so there's rising prices, more layoffs. What is Qi Research's uh update on the labor market um right now? So right now uh for the month of October, it's almost finished, but layoff um announcements are tracking to be at the second highest for any month in the last two years. Um and we are seeing indeed that companies that sell through to those the the the bottom tersile and the middle tersile whether it's a craft hind or a manderly we're seeing them say or even PayPal we're seeing them say you know what we are seeing consumers spend less as the cost of essentials such as food and electricity continue to rise. And at the same time, of course, we're seeing shelter uh whether it's home prices or um or whether it's rentals, we're seeing those prices come down as well. But generally speaking, uh inflation right now is not problematic. And what about into 2026? How will bond rates, bond yields, uh react to not just the Fed, but also the economy and growth? We're seeing tenure yields continuing to fall um over the course of the year. Today, we did see a rise in yields. yield soared actually. Uh traders dumped bonds on the Fed's announcement. Uh but I wonder what's next. What do you think? Well, you know, it's it's interesting because if the Fed chooses to ignore what's happening in the real economy and refuses to lower interest rates, sometimes the bond market has um has a funny way of doing the Fed's job for it and forcing the Fed to uh to pay heed to what it's doing. again, you know, when when you play segments from Powell's uh press conference that that suggests that that they're somehow driving in the fog because they're the only isolated entity on planet Earth that can't use alternative data sets. I mean, it's all it's all pretty flimsy. It's it's fairly obviously political at this point. Why can't they? I mean, why can't they just use private data at this point? David, they can, right? But they choose not to clearly. Okay. What? All right. Usually I don't give such short answers, but no, I understand what you mean. Pretty rhetorical questions. So, okay. I I I get it. I get it. If you were at the Fed, what would you do? I would say open your eyes. Um, and quit being political because, by the way, that's in violation of the Federal Reserve Act to be as as as openly political as as the Fed's being right now. And don't get me wrong, you know, having a distraction of of a Steven Myron uh who's going to be at the December meeting and and the January meeting, I mean, that that's got to be irritating for individuals who truly want to be on the Federal Reserve Board and want to be on the Federal Open Market Committee, but that does not that does that doesn't make for an excuse at all for abandoning your obligation to make monetary policy for the good of all Americans, not just the top 10%. Final question. What does the uh path fit funds rate uh mean for uh the dollar and anti-dollar assets like gold? We're seeing gold fall from 40,000 uh $4,000 is now below $4,000 as we speak. Uh the DXY had a big boom today, a boost today. What's what's the path forward, you think? You know, it's interesting because even though the market has been anticipating Fed rate cuts, we've also seen the dollar quietly strengthening despite that. Um, so I would say that that investors should be very cautious about um about some of the froth coming out of the recent moves in gold and that they could see a continued consolidation there. Um, but I would be very hesitant to say that the dollar is necessarily going to um going to weaken even if we do see bond yields start to come down in reaction to whether the Fed wants to or does not want to act. Sometimes the bond market acts for you. Okay, very good. Thank you very much, Danielle. Where can we follow you? Uh, so if you don't already follow me on what used to be called Twitter, please do at dmart booth. Um, come to Substack. Love to have you become a reader of the Daily Feather dart.stack.com. And if you run Money for a living institution, family office, come to qearch.com. Love to have you. All right. Thanks a lot. We'll speak again soon. And uh, please do follow Danielle in the links down below and subscribe to this channel as well. Cheers, Danielle. See you next time. Thank you. Thank you for having me. Thank you for watching. Don't forget to like, subscribe.