Jack Farley & Max Wiethe on Fed Hawkishness & Steep Stock Market Sell-off
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The ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough. Thank you. Just close the door. Please, on a very important day, to welcome my friend and business partner, Max Wiecki to Monetary Matters. Max, great to see you.

What do you think caused

caused the market to move this much on what honestly was in line with the market pricing, at least for interest rates in terms of the Fed's projections.

Yeah. Max, I have to say this reminds me of 2022 when Jay Powell on Fed Day would go out and indicate a level of hawkishness that the bond market had largely actually priced in. So a bond trader, this is as we expected. What's the news? Why is the S&P down 2%, 3% and down more the next day? It was because the stock market and the bond market are very different people who invest. And what is obvious to people in the bond market is not paid attention to

people in the stock market. And Powell going out there and saying it makes it a little bit more obvious. So yes, you did have a 10 basis move up in the two year and the 10 year yield. So yields went up. So long term, you know, money rates went up as the Federal Reserve actually cut the 25 basis point. So I guess, yeah, we have a further yield curve steepening, I guess, on the really short end. But I think this was a shock to market participants. And also, Max,

I really don't like to trade on gut or even talk about my own gut, but I feel like the market has been going up for so long and it's really been very, very weak in terms of which stocks are going up. It's got to be increasingly narrow. And I think over the past 10 days, over 400 stocks in the S&P are negative as the S&P was basically flat. The Dow Jones had been going down for nine days in a row. That's because of a technical snafu really having to do with the United States.

healthcare stock. You know, I actually started the day after their CEO was assassinated. So I think there's a lot of technical forces coming together. And, you know, later on in that tweet, I posted basically

Just an observation, if you trade based on the tweets from a 28-year-old podcaster, you're going to have some severe issues, even if I do end up being right, which is not a statistical likelihood because stocks tend to go up. So my prediction that there will be some volatility in markets, the stock market will go down. So far, it has proven to be true. And I guess I just got lucky, but I really don't know what's going to happen next, Max, because as we said, this is a big move, over 2% in the S&P. And

This is definitely a level of volatility that we haven't had. And Max, on the day of the Yen Carry Tray sell-off in very early August, the VIX went to as high as 65. Now, whether that's a real measure or it's just imputed, it is very different. Basically, implied volatility spiked way up. The VIX did not go up that much today. And I just, you know, to be honest, like 30 minutes ago, I was reading Bloomberg and the S&T was down a lot.

And the headline wasn't S&P down a lot. It was talking about Powell said this about housing inflation. So it just seemed like people weren't paying enough attention to things. And I think my level of unease from 2 p.m. when the statement was released gradually got higher and higher. Max, how are you thinking about this market? Because we've been kind of trading and talking the entire market. So what are you thinking?

I think obviously the interest rate market and in terms of like if you look at the Fed watch, you know, pricing tools, which I know they have their like issues with the exact probabilities of pricing. But I think they're generally a good directional measure of how how the market is pricing, you know, expected moves from the Fed. And yeah, they pretty much right on. I mean, there's going to be questions about timing, like what meetings they do what and obviously pricing.

as Powell has said for the past three months, that they are going to be reactive to the data as it comes in. So if the data changes, things will change there. But yeah, I mean, it's just been pretty complacent. Volatility was extremely low. I mean, usually after a Fed meeting, we get a vol crush, like where everybody is hedged for some sort of like big surprise. And we didn't really see that today. Obviously, we saw an expansion vol on big,

big sell-off, as you said, like we didn't really get volatility to expand too far off. Um, I, you know, I think, uh,

I am uncertain as to what is going to happen next, but I do think that, look, end of the year, like crazy things tend to happen both to the up and to the downside, especially next week when people tend to step away. So, you know, I am a little bit more concerned that we do see like some carry through in this move just because of where we are in the year.

And as well, just like I do like to get into like the psychology of things. So it's been a huge up year, right? So if you have been behind, you've been playing catch up. And at the same time, that same, what I was just talking about, how things could carry through to the downside. Like we've seen days where like on, I think Christmas Eve is usually a half day, like where Christmas Eve will be like up, like 4% or something like that. Like huge, huge outside of the realm of possibility move. And if you miss that and you've already been behind,

like you, you know, you can really get, um, really get left behind. And so with the interest rate market having sort of like already, um, stuff that I wouldn't call it fed pivot, but just like a change in tone from the fed, um, and a realization, you know, sort of a realization that employment is stronger and inflation is stickier. Um,

You know, I think there was really sort of a belief that it's like they can't be any more hawkish than this. And so like all of the risk is that they come in dovish and the party goes on. Clearly, that's that's not what happened. So I would believe that there is a chance for a follow through here because of that positioning and because of that psychology that I do think maybe people were caught off guard by the Fed's policy moves.

or really the summary of economic projections. But the market reaction to that definitely seems to have caught people off guard. And for that reason, people are probably offsides. VIX is 30 days implied volatility. A lot of it occurs in very short-dated options and in some instances, one-day options. I happened to scoop up some puts around 2 p.m. or around there when the meeting came out. And

I was seeing implied volatility as low as 10 or 11%. And the S&P today ended up being down 3%, which if you annualize it, just multiply by 15.87 or let's say 16, that's a VIX of, that's a VIX volatility of 48. Now, of course, it's not going to go down 3% every day or go up 3%. But then on top of that, you know, it should volatility, implied volatility should trade at a premium to realize and the VIX is, what is it? A floating strike from a variance skew. So it should trade at a premium, premium, premium.

So, yeah, I think the market is caught a little bit off sides. And it is surprising. But, Max, this is a monetary policy show. Let's talk Turkey. So the interest rates move was way, way less significant than the move in stocks. But there was a repricing. Going into the meeting, the market was pricing an 80% chance that the Federal Reserve would not cut at the January meeting. Now it's as high as a 90% chance of no cut.

And so for all you know, they started their interest rate cutting cycle with 50 basis points, a double cut in September. They did 25 basis points in November. Today, they cut by another 25 basis points. The market is now pricing it very likely that they will not cut in January. And the modal outcome for 2025 is that they only do one interest rate cut. And basically, it's almost as likely that they won't cut at all as doing two interest rate cuts. To my untrade eyes, Max, that seems a little bit extreme. I think

My uninformed view, I mean, I'm not an economist, it's just that the risk is to a recession rather than renewed inflation. And that as inflation falls, real interest rates go up, keeping nominal interest rates tight. So you have to be lowering and cutting that interest rate. So zero interest rates cuts could happen. One interest rate, two could happen. But looking at the market right now, at 4 or 8 p.m. on December 18th, I think that the market...

is pricing it a little bit more hawkish fed than I see. Yeah. I mean, how does that compare to the DOTS? Correct me if I'm misreading this, but it looks like we've got a median of 3.8% for the DOTS.

It's 3.9%, which that means 3.75% to 4% would be the range, which would be two cuts. Because now, today, the Fed lowered the range from 4.5% to 4.75% to 4.25% to 4.5%. So a 50 basis point cut or a double cut would be two cuts. So the dot clock indicates two cuts for 2025. The market is now pricing one, let's say 1.2 cuts for 2025, 2025.

I think that the odds that it is actually higher, like three or four, is...

I don't want to say high, but it's higher than the market is pricing in. I mean, the market is pricing in that there's almost a 0% chance that the Fed Reserve cuts to 3% or 3.25%. I think that's definitely on the table. And I think to say that, oh, that's never going to happen would be ridiculous. I mean, I think that the odds that we have a recession, maybe let's say I agree with Hal that they're not higher than normal. So that's one in seven. But if we have a recession, the Fed is...

is cutting lower than 3%. So that's one in seven. That's not zero. Also, I'd say that, you know, I'm just, you and I are referencing this CME, Chicago Mercantile Exchange Fed Funds Pricing Tool, which on the extremes, as you go out further on the distribution, get less, less accurate. So I think the way to look at that would be to look at options. Like, I don't know, would it be a,

a 97 call, you know, because 3% is 97. That's how you look at the probability, not the CME. So it's probably not as low as what I'm seeing. I'm seeing a 0.3% chance of 3%, which, you know, if I could take that trade, if I could actually buy a call option at that option, you know, I definitely would. And I would recommend sophisticated traders to do it as well. But I think it probably is much higher. So, but to me, it looks a little rich. I was going to say, you keep discussing like the data, right?

um, or the, the, the chance that a recession you view that as the bigger risk, like what is the data that you're watching? Obviously GDP is lagging. That's not going to tell us, um, what's going to happen. So, um, you know, employment has been like the big one to watch for a downturn in the, um, in the job market, you know, Powell said like

The level of job creation is probably not going to see the unemployment rate tick down at this point. So what are you watching that is going to tell you that this risk that you see as a higher risk is coming through? Well, as Powell said, the level of jobs that we're adding every month, if that holds constant,

more people are entering the labor force than are getting a job. So the number of people who are in the labor force looking for a job who don't have a job, that percentage is going to increase to the tune of, and I didn't do the math, but the chair of the Federal Reserve said it, so I'll say it's true, 10 basis points every two months. So five basis points every month, which would mean that unemployment rate would increase 60 basis points in a year. The unemployment rate going up is not good. And I'll

also happen to agree with Powell that I don't think that the labor market is a source of inflationary pressure. Inflation is kind of a residual from housing and services and all sorts of random stuff. Medical care, which I would have liked him to talk about non-measured levels of inflation. He said financial services, but I would like to talk about healthcare. They're imputed. No one is

going around seeing how much, you know, is a heart transplant actually costing because they take it from an insurance. I talked about that with Visit Delaware. But I just think that everything in nominal terms is going down. And I think that I expect that to continue.

So how do you square like what what Powell said about, you know, if if everything stays constant, that you'll see unemployment tick up by like 0.6 with the fact that their projection, the median projection went actually down. So in September, we had 2024 or 24 percent unemployment projection and same thing for 2025.

They they updated that to four point two for twenty twenty four and four point three for twenty twenty five. So if that's they see the labor market, the job replacement rate as as being pushing unemployment up, but yet they still see still see unemployment rate going down.

How do I square it? I can't, Max. Those two are contradictory. If the job market continues to add what it's been adding, that's five basis points to the unemployment rate every year, which would be an unemployment rate by the end of 2025 of 4.8%. 4.2, which is the current, plus 60 basis points. The unemployment rate at the end of 2025, according to the Federal Reserve, the median projection, is 4.3%. How can I square that? I simply can't. However, Max, I'll say that it might...

first or second monetary matters interview the day of the September 18th 50 basis point cut two months ago

I said that the unemployment rate projection seemed very low because the SOM rule had been triggered, semi-triggered, and it just seemed like unemployment rate was going to go up. I was very wrong. I actually could not have been more wrong, and the unemployment rate went down. So I think the prediction that the economy will slow and enter recession, people have been predicting this for literally three years now, and it hasn't happened. And Powell made it, quote, a

said that he said people have been projecting for a very long time that the economy would enter recession and they've continued to be wrong. So I said that he was dunking on the recessionistas. And yeah, the forecasters should call for a growth slowdown. It just keeps on not happening. What happens is that there's a growth in nominal slowdown, but inflation slows down way more. So real growth has gone up. And yeah, I mean, predicting the stock market is very, very difficult. You know,

You have to say I happen to have a good call, but I think predicting the economy is even harder because it's just so hard. I mean, look, economists are really smart people and just look at their track record over the past two years. How can I do any better? I simply cannot.

But what you're talking about is reflected in the in the change in the real GDP projection. So in September, they had it as two point over the year and we're up to two point five. Interestingly, though, like inflation didn't come down as much as they predicted. So that means that there is some underlying strength in the economy beyond just what you're talking about in terms of inflation coming down. So we had inflation stay stickier than they they projected in September.

yet real GDP went up. So it can't be attributed to what you're talking about. Absolutely.

All right. So what else in that SEP do you want to get into? I mean, we just talked about, I just mentioned, you know, the revise up in real GDP and how that really can't be attributed to inflation. I mean, I think I kind of, I think I kind of disagree with you, actually, Jack, somewhat on the recession risk. Like, I do think that not that it's going to be like 22, where people are really like closely watching CPI and these inflation numbers, but I do think that, yeah,

you know, inflation has come back into the fore in terms of determining like the path of monetary policy going forward. Not that I think we're going to get like this big surprises to the upside like we had before. And it's, you know, it's really going to shock markets. But in terms of determining who's right, the market one or the Fed two, or whether they're both wrong, like I, I think that they have a better handle on what's going on with employment clearly.

than they do. They've been more right about employment overall than they have been about inflation.

Yeah, on a 12-month basis, Max, inflation hasn't gone up. It has just ceased to go down, which is not great, but it's in that 2.5, 2.7 type range, depending on how you measure it. When you look at the three-month or six-month annualized, it's a lot more volatile. But yeah, overall, I think inflation is whipped below 3%. I think it's a question of how much does the Federal Reserve want to fight? If it's at 2.2%,

Are they going to really increase the recession risk from 10% to 50% to get to that 2.0 mark? That 2.01 is not enough. I mean, they've said that they're going to start to moderate policy well before inflation actually hits 2% because in anticipation of it. And I largely agree with that. Max, I do know you made a great observation that in Powell's speech before he gets the questions from the reporters,

In November, he said, overall, inflation has moved much closer to our 2% longer goal, but core inflation remains somewhat elevated. That sentence was entirely absent. So it looks like Powell didn't say that inflation has moved closer to our 2% longer run goal. So yeah, this is, you know, it wasn't a hawkish or a dovish meeting. You got to judge your relative expectations. It was hawkish.

The big question is like, okay, let's say that inflation, like, as you said, goes sideways. If it continues to go sideways and unemployment hits their expectations of actually, you know, hitting 4.3%, really not that big of a rise from where we are now, will the Fed still consider their path for monetary policy restrictive? I don't necessarily think so. Yes, I don't know. I really do fade the...

hiking in 2025 argument. Let's just put it this way. They're made by economists who work at investment firms that just so happen to benefit from high interest rates and a higher for longer environment. So it's a little bit convenient. I just I don't really see it. But that's yeah. I don't think Fed will be spending 2025 hiking the Appalachian Trail or anything like that. I'm just saying that, you know,

Right now, Fed is saying two cuts. Market is saying one cut. Is it possible that we stay where we are for 2025? You know, I think that that's definitely a real possibility that we...

We would have to see definitely a move up in inflation, serious move up in inflation to to see hikes. But I think that a pause is certainly possible, especially given that the market has now priced in nothing for January. It means that they're going to get a couple of of data points on inflation before likely before they have to like really.

really make a decision because they pretty much when the market prices in prices things in like with this much certainty, the Fed generally tends to meet the market where they are. So that's very true. But it's got time to change its mind. If it was a week before the Federal Reserve meeting, I'd absolutely agree with you. 90 percent chance price of the market means 100 percent chance. But we've got like, what, 40 days until, you know,

you know, and fewer trading days until January 29th. So we got, we got some time. Now there was one very technical thing that, uh, the Fed put out in their, uh, implementation note, um, which is about the Fed's, uh, repo rate. Uh, Jack, you definitely know more about it than I do, but they, they moved down. Normally the repo rate moves down sort of lockstep with, um,

with the Fed funds rate. In this case, they moved it down five basis points more. What does that mean? There was a slight tweak where instead of lowering everything by 25 basis points, they lowered one particular interest rate, the reverse repo rates by 30 basis points. Normally, the reverse repo rate is five basis points higher than the lower range of the federal funds rate.

But now it's exactly at the same level. So yesterday, let's say the lower Fed funds rate was 4.50%. The reverse repo rate was 4.55%.

You know, we would might expect that the Federal Reserve would lower the Fed funds rate from 4.50% to 4.25%. That is the lower end of the Fed funds target range. And they would lower the reverse report rate from 4.55% to 4.30%. But they actually lowered it to 4.25%. And this is really the rate that matters, Max. What the Federal Reserve talks about and what the media reports is the Fed funds rate.

And that was the rate of choice that really mattered prior to 2008. But the Federal Reserve manages interest rates in a completely different way. And to be honest, when I was in college, you know, like eight, nine years ago, I learned the old way that they did in 2007, even though it was already outdated by many, many years. So the way that they manage interest rates is by

paying interest rates, uh, is, is like paying interest rate at the low end of the range and receiving interest rates from, from banks at the high end of the range, rather than adjusting the level of reserves that banks lend to each other. Uh, and so what they, what they changed today is the rate that really matters, the reverse repo rate. And now we've reached the edge of my knowledge. Uh, you know, Max, I posted about it and, and I said that, uh, this is, this is big, big news. And someone, um, Eric Wallerstein, formerly of the Wall Street Journal, now of, uh,

your Danny research chief market strategist, he actually used to work with Joseph Wang at the Federal Reserve. He said, because I said in my original post that the reason this could ease money market rates and accelerate money floating out of the Fed's RRP facility, reverse repo facility. Eric Wallerstein correctly said the money's already out of the reverse repo facility. They just want to prevent repo rate pressure. So the reason why did the Fed do this? What does this mean for retail investors or investors? I can't really say, but it's just to prevent repo rate pressure. And that's the end of my knowledge.

Jack, well, let's get into something where you do have a bit of knowledge, which is how are people going to react to this Fed beating? Obviously, there were, you know, because this was a bit of a, hey, we didn't quite get things right in September with our, you know, SEP projections. A lot of the questions from journalists were about like, well, how did we get here? How did we get to this point where you guys are kind of correcting course a bit?

Um, and you know, I saw some people say he, he sounds, you know, like he's rambling or, or whatever. I mean, it was, uh, a few people commented on just how long the press conference went. So, um,

How do you think the market is going to react to this? He ended on a very, a very strong note saying, you know, we have control. We are going to reach our target because the final question was about like, are they going to put a new inflation target of like 3% and just accept that inflation can't be whipped? And, you know,

He probably gave his strongest, most definitive answer to that final question saying like, no, we are not going to adjust our inflation target. We are going to whip inflation. But other than that, I mean, he was kind of on the back foot for a lot of the press conference. Was that the tone that you got from it? And do you think the market is going to take that tone away from it?

I think that if you look at it in terms of tone only, strip out all of the content, I agree with that analysis. I thought Powell was a little bit more subdued than normal. He did give the longest pause I've ever heard in a Federal Reserve meeting from Powell, but that was to check his notes. A piece of data that, to be honest, I would have thought that he would have known by heart, but he just wanted to make sure it was right. And that's much better to check your notes than to make mistakes. So you're

Credit to him on that. That was in a response to Nick Timuris' question. I mean, look, inflation is still above 2%, but interest rates are still way above 2%. So interest rates are restrictive, but inflation is not going down. And that leads kind of the haters as well as the no-landing easts to say, well, monetary policy is actually not restrictive. But I think the Federal Reserve has to trust its own guns of knowing what is right.

what is restricted because I mean, a real interest rate of two or 3% should be slowing down the economy. And you are seeing job losses go at a level. Like I think, I think the federal reserve just has a lot of room to cut and then, you know, they can, they can always increase policy again. I guess the question I asked was more one of like,

You think you believe that the Fed should stick to their guns, but does does the market believe that you do the rest of the people in the room believe that? And will we continue to have tantrums if people believe that the Fed is sticking to its guns to a fault?

I think the market is definitely downing the Fed. Yeah, there's no doubt that the market really has a desire to price in fewer and fewer cuts. And I think that's kind of a bias that the market has. Of course, it's not an emotional market. It's just people trading the way that they see things. But I'd say for most of this interest rate of the interest rate hiking cycle, as well as for much of the time when they're pausing, the market was always so quick to doubt the Fed in the other direction. The Federal Reserve said they hike

The market doubted it. Or if they didn't doubt it, they'd say, oh, well, you'll get to there and then you'll immediately start cutting because there will be a recession. Now I think the market has fully drinking the no-landing Kool-Aid. I want to shout out to someone, Vincent Delawarge, who I interviewed recently on Monetary Matters. He kind of is in the awkward position of having been extremely right on interest rates. Admittedly, inflation has fallen way more than Vincent probably would have thought. But the bond market agrees with

with Vincent's no landing thesis so, so much that it's, I think there's not a lot of, you know, there's not a lot of reward by taking, you know, basically a short bond position in my view. And there is some reward in taking the risk that the Fed Reserve could cut some more. I mean, the market is pricing, like there's going to be one cut next year. That's just, that's nothing. I did actually want to ask you about something Vincent said, because we didn't talk at all about like

Obviously, it's Fed Day. But, you know, one of the things I felt he he noted pretty strongly was his belief that that in the EU they will ease and that that things are not as rosy over there. I mean, Fed Fed your pal today said when he goes to conferences, the story, the biggest topic of conversation is the strength in the US relative to the rest of the world. And so if, you know, that continues and the Fed continues

uh does have to ease more slowly than than they you know predicted just a few months ago or or even that they're pricing in or that they're projecting right now um that is going to mean that there's going to be you know a big gap in in monetary policy between us and the rest of the world um

And that's going to play out, you know, in currencies. So, you know, he said that he sees the euro going to parity, you know, and maybe even further than that. What do you think about, you know, you said you don't think there's a lot of juice in taking the, you know, short bond trade. But what do you think about the juice in that? Clearly, the rest of the world is struggling economically. I mean, look at what's happening in the Chinese bond market.

And in their policy easing compared to what's happening in the U.S., do you think that that gap is going to continue sort of regardless of of what the Fed's path is?

Do I feel comfortable making a bet or a prediction that the Federal Reserve is going to cut by less than the market expects? No, I don't. Do I feel comfortable about the Fed cutting less than other markets, in particular Europe? Yes, I do. I don't follow Europe nearly as closely, but you look at the market, you look at real

real GDP. I mean, German real GDP is flat over five years, which to American Americans isn't something we can really comprehend just looking at the broad macroeconomic data and real GDP in America. So yeah, the European economy is way weaker. And I think they have cut and will cut more. So a bullish dollar position makes sense to me, but I don't have a lot of confidence in my

FX views, but I know it does matter a lot. And yeah, shout out to Vincent, who a week ago made a prediction bullish the dollar and the dollar was up like 1% today, going from $1.05 per euro to now $1.04 per euro. And when Vincent said it could go to parity, that's $1 per one euro, which would mean a further strengthening of the dollar. I think

I think that would be very interesting. And I think it'll also be interesting to look at the correlation between the dollar and the stock market. The dollar often

The US stock market does well when the dollar is mildly strong or mildly weak, I think, but not so well when it's extremely strong or extremely weak. Because if it's extremely weak, there's an issue in the US, commodity prices are high, extremely strong because there's a global dollar squeeze and it's a worldwide financial crisis, which is obviously rare. But yeah, short term, being short the Euro,

That makes sense to me. Do I have confidence to put it on or recommend or do anything? Not that I ever make a recommendation, no. But yeah, it makes sense to me. What do you think, Max?

Everything that we've gone through politically, like Europe still has, and just the way like the parliamentary system works means that these sorts of like political scuffles where countries are sort of like realigning themselves, like it's not like the US where it all happens on one day and like we just change directions. The boat is turned. And obviously I know that like at the policy implementation level, it takes longer to turn the boat. But we've seen like the change in surveys sort of like immediately how people's sentiment can change.

because is like one day and especially in a decisive move like we had in our elections. I think that that's not really going to happen in Europe, that they're going to fix all their problems overnight. And it just takes a while.

So I know like Canada is sort of like just entering this too. So I know what you're talking about Europe, but Canada is sort of like entering their own sort of political moment here. Um, what is the government going to look like moving forward? And just when you have that uncertainty, um, it creates problems and, uh, it also provides firepower for not that, uh, central banks are driven by politics, but, um, you know, it certainly creates, uh,

opportunity for them to you know be a little bit more dovish than they might otherwise be um because of that uncertainty so you know I like like 22 like just taking taking the Fed at their word like there was an opportunity in that trade that they were going to you know really try and beat inflation like I think um they've pretty much signaled that they're only going to cut um

twice in 25. And I think there's a lot of risk. And if the US enters a recession, I think that there's probably going to be a global recession. So even in the case where the Fed is cutting, what happens in a case of a global recession? Like the dollar generally goes up because of a dollar squeeze. So, you know, you have the things kind of move along as they do. You know, I think there's a good chance that we see more easing outside of the US and the

If we fall, we all fall. And, you know, they they tend to they tend to, you know, go as fast or faster than us in terms of getting to zero. And, you know, they're willing to go even further than us. So, you know, I feel, you know, not not to say it's a layup, but I feel pretty good about Euro parity.

That makes sense to me, Max, that if the US economy continues to be robust, that the Fed will cut a lot less than Europe, so the dollar will go up. If the US economy does enter recession, what happens when the US economy enters recession? The dollar rallies even more, which actually can be bad. I also think not only if the European economy is worse than American economy, not only do I think it's likely that the euro will weaken, I think

economically, it is a good thing that it's weakened. I think weak economies should have their currencies weakened because it strengthens their exports. And if the U.S. economy is very strong, we should have a stronger dollar that will actually make it harder for our exports and easier for our imports. Interesting that our president-elect, President Trump, he has ran on a platform of strongly promoting manufacturing. So I think that a stronger dollar could hurt manufacturing. I mean, mechanically, it does.

But also there's a question of, is the dollar going to strengthen in resistance to the Trump tariffs? And I also think, Max, and I'm going to share a little bit of a hot take here, that it makes sense for the Federal Reserve to account for tariff policy. I mean, tariffs are inflationary. And if we have huge levels of tariffs on the rest of the world that drastically increase consumer prices, that should affect the Federal Reserve's level of interest rates. Now, a reporter, Chris Rubehrer, great guy, he referenced the 2018 Teal book in which

the Federal Reserve said, we're kind of going to look past tariffs. And when I interviewed Joseph Wang, he said that he thought that that was the Federal Reserve's way of going about things because price hikes from tariffs are transitory, which is a very dangerous word to use. But I just, to me, I mean, I think that to say that

like someone who, you know, I think that a Federal Reserve official who incorporates tariffs impact on inflation on their level of interest rates, like they're not just doing something to punish Trump and they're not a partisan hack. I just think they're doing their job because tariffs, fiscal policy does matter in the same way that, you know, fiscal policy under Trump and Biden in 2020, 2021 was quite inflationary. And that, you know, led the Federal Reserve ultimately at a late date, too late to raise interest rates. So, you know, fiscal impact, monetary

monetary impacts fiscal. And I think the tariff issue does matter. And I think the Federal Reserve is factoring in it. And you said, what more do I think about the summary of economic projections? This is deep in the report. I haven't analyzed this in depth. Again, we're less than two hours after it started, the conference. But I think that the number of participants is

their uncertainty about inflation is particularly higher. So a lot more participants this time around said there is more uncertainty around PCE inflation than did in the September summary of economic projections. So I think the impact of tariffs and the new administration is weighing on that. Powell, when asked about that, he said, you know, sure, we take a fiscal policy, but it's not just tariffs. There's a whole lot of macro other things as well. And he actually named, you know, five or six reasons. But I think, you

But, you know, tariffs matter and we got to pay attention to them. That is the big unknown for 2025 is what is going to come out of the White House and Congress and whatnot in terms of actual policy. You know, that's something we're going to have to wait until at least the end of January to see more of. So why don't we leave it there? We've got a lot to digest before the next Fed meeting and before we start to get some answers on inflation data on inflation.

you know, the strength of the economy in 2025 and what that fiscal policy is going to look like.

Definitely, Max. A pleasure as always. People should check out your show, Other People's Money. People should check out my show, Monetary Matters. I've got a lot of guests I'm excited to speak to. Actually, tomorrow, I'm interviewing three guests. I'm going to interview Daniel DiMartino Booth. Then I'm going to interview Michael Howell. Then I'm speaking to Citrini. And so three people who've got definitely different views, and those should air over the next few days. So people should, you know, got a lot of great content. And then in

January, got a lot of really great guests as well. I mean, some of the most well-respected economist investors in the world. So people should stay tuned. Subscribe to Monetary Matters on Apple Podcasts, Spotify, YouTube. It really helps the show. Just leave a review. You know, it's not going to massively, you know, change the show, but it really, it just feels good. And we really appreciate it. Perhaps it helps with the algorithm. We don't know. So leave a review if you feel so inclined. And until next time. Thank you. Just close this door.