Hello my friends. Today is March 18th

and this is my March FOMC debrief. So we

just got finished with the uh presser

and um I think it was a pretty hawkish

conference and you can see that in the

rates market as well. Uh suddenly you

see the market pricing in fewer rate

cuts. Now before we get on to what

happened today, let's review a little

bit. So the last time we had an FOMC

meeting, we had a couple descents by

Governor Moran, of course, and of

course, Governor Waller as well, noting

weakness in the labor market. Between

then and now, a whole lot has happened.

On the labor front, we did get a

shockingly weak non-form print last

month. We lost a lot of jobs and the

unemployment rate ticked up a little

bit. On the inflation front, honestly,

it looks like we're kind of stuck. It

looks like we're probably stuck around a

3% inflation and have been for some

time. But of course, the big thing that

happened over the past few weeks is the

war in the Middle East. That's led to a

huge energy shock and that's potentially

uh going to feed into another wave of

inflation. So today, what many people

were looking at is how Cher Powell would

um think about this inflation shock,

this oil shock. And of course what I was

personally looking for was what Cherpa

would do uh as his chairmanship ends in

the coming months. Now this quarter this

is a March quarter uh meeting. So we

also have the SCP dot plot. Looking at

the dot plot. So the the FOMC the median

FOMC participant didn't really change

their expectations for policy. Still one

cut this year, one cut next year. They

did modestly upgrade their growth

estimates for GDP. modestly raised their

inflation forecasts and surprisingly did

not really change their expectation for

unemployment thinking that it would hold

steady at 4.4%

um this year.

Now, the reason I think that this press

conf Okay, let's move on to the press

conference. Now, the reason I think it

was hawkish, well, there's three reasons

why I thought it was hawkish. First off,

how is Cher Powell looking at the energy

shock? Now, if you go to central banker

school, they'll tell you that, you know,

you got to look through these energy

shocks, right? So, there's a couple

reasons for that. One is that monetary

policy uh acts with a lag. So central

bankers think that when they do

something with interest rates,

there's a lag between when they hike

rates or cut rates and when it impacts

the economy. Maybe it's like 12 months

or something like that. Again, no one

really knows. But the point is is that

if they change interest rate policy

in reaction to the energy shock, you

know, maybe 12 months from now the

energy shock is long gone and so they

basically overreacted.

The second thing is, of course, that

energy is energy inflation is basically

transitory. Let's say that the oil price

goes up $50 right now. I mean, we don't

really expect it to go up another $50

next year, right? So again, this is

basically a onetime change in the price

level rather than a change in the rate

of change, that is to say inflation. So

you would look through it. So that's

what the US did actually in 2003. Iraq

invasion and early 1990s operation

desert storm. Both of them had huge

spikes in oil and the central bank

looked through them and continued to

cut. Now asked about this, Chowo was

like, "Yeah, yeah, that's what we should

do." However, and this is the big

problem that many people have noted,

we've just had a lot of shocks over the

past few years. We've had COVID and

we've also had the tariff shock. And so

Charl was like, "Yeah, we should I want

to really want to focus on what happens

with the COVID shock." the sorry the

tariff shocks first. So his expectation

is that tariffs kind of one time change

the price level. He wants to see that go

through uh goods inflation first before

he wants before he's willing to look

through any energy prices. So again

that's not super doubbish nor hawkish.

It's kind of non-committal kind of

waiting and seeing. So there was a lot

of I don't knows that cher mentioned and

that makes sense. We are in the fog of

war.

The second thing that I thought that was

much more hawkish was how Cher Powell

characterized the weakness in the labor

market. So from my perspective, the

labor market is quite weak. Uh if you

look at what happened to jobs last year,

basically almost all the job gains were

revised away and of course last month

big job losses. Now Cher Powell actually

strongly deemphasized this. He was like

yeah you know that job number stuff

that's mostly because of changes in

immigration policy. If you look at the

unemployment rate, which he views as a

better measure of supply and demand, you

know, it's around 4.4%. So that's

basically where it's been for several

months. So he is doesn't is not

signaling urgency uh about the labor

market. And related to this is that

Governor Waller, who was very worried

about the labor market last meeting, did

not descent to this meeting. Only one

descent this meeting. That's from

Governor Moran. So again, that shows you

because Governor Mo because Governor

Waller did not descent, that shows you

that the FOMC uh is a little bit more

hawkish now. So again, if he's not

talking about uh weakness in the labor

market and he's more emphasizing

inflation, that suggests uh fewer cuts

than than expected going forward. Now,

the last thing that I thought was super

hawkish, and this is what I've been

focusing on is what Paul would do after

his chairmanship ends. So, historically

speaking, once your Fed chairmanship

ends, you would step down uh from the

Fed and then the president at the time

would get to appoint someone else to

fill your position. In Pyo's case,

although his chairmanship ends in May,

he's he could still be a regular

governor and stay on the FOMC for a

couple more years. Now, if he were to

again what do what fetchers typically do

and just, you know, ride off into the

sunset, then President Trump could fill

his spot and we could have again a more

dovish composition in the FOMC. But, uh,

this is what Pal said today. Uh, and

while I'm at it, um,

on the question whether I will leave

while the investigation is ongoing, I

have no intention of leaving the board

until the investigation is well and

truly over with transparency and

finality. And I would refer you to the

statement that was in the Fed's brief

that you will all have seen. And I won't

have anything more for you on that. On

the question of whether I will then

continue to serve as a governor after my

term ends and after the investigation is

over, I have not made that decision yet.

uh and I will make that decision based

on what I think is best for the

institution and for the people we serve.

So it it's very clear that POW is

basically standing up for himself and

what he thinks as the interests of the

public. So first off again there's that

lawsuit the president launched against

Powell and the Fed trying to I guess

create a pretext to get him to quit.

Now, Powell is standing firm, saying

that as long as that lawsuit is ongoing,

he's not going anywhere.

Secondly, again, he brought this up

himself. He's suggesting that whether or

not he's going to stay at the Fed, he

it's going to be based on his view of

what's best for the institution, for the

American people. That is him basically

telling you that if he feels that the

Fed is going to Fed's independence is

going to be challenged, he's just going

to stay there. He's going to stay there

and do what he thinks is best. And

because Powell has gravitas with and

influence with the rest of FOMC, again,

a lot of people there respect him. He's

been at the FIT for a long time. He

knows the people. Um so they're going to

listen to Cher um Cher Powell, then

future Governor Powell as he as the

chairmanship goes to Kevin Walsh. And

basically because of that influence I I

could see POW becoming something like a

shadowfed chair continuing to exert

significant influence on how the mean

thinks even though he's no longer

formally chair. So this is something

that's going to throw a wrench into um

expectations that we would have a more

politicized Fed that would be more

amenable to Ray cuts as demanded by the

president. So that's again something

else that is sending a hawkish signal.

So this is a super interesting and fluid

situation. We'll see what happens. I

continue to think that as the Oshock

becomes longer, it's going to have a

negative impact on growth and maybe

after OPEX we could see more meaningful

declines in the market. And I think what

would happen is that the market would

also become more focused on growth uh

rather than inflation. That will feed

into the Fed's reaction function. So,

I'm not uh I I Fed is hawkish today, but

I still think that they're going to end

up uh cutting rates a few times this

year. All right, so that's all I

prepared for today. Talk to you guys

Saturday.