A Horse Called Jerome Powell

A new interview with Fed Chair Jerome Powell... In case you didn't hear it the first time... Rip up your Fed tea leaves... Follow the data... Powell gets political... We've gone 'quant'... Eric Wade's new book...

Fed Chair Jerome Powell reiterated his message this weekend...

Last night, I (Corey McLaughlin) flicked on the TV to find Federal Reserve Chair Jerome Powell strolling down the hallways of the central bank... and sitting down for an interview with CBS News' long-running Sunday night show, 60 Minutes.

Given my role here, it would have been delinquent to put something else on, like the past Super Bowl replay airing on NFL Network...

So I watched the interview to see if Powell would say something different than he said last week after the Fed's latest policy meeting (which we summarized here). The important point is, Powell didn't change course...

In the interview – clearly designed to spread the central bank's latest message far and wide to anyone who might not have heard it – the Fed chair reiterated the points he made last week:

1. Don't expect rate cuts until May, at the earliest. That's because the economy is "strong" enough, Powell says, to handle higher rates and the pace of inflation can still get closer to its 2% annual growth target, in the Fed's estimation.

2. The Fed plans to cut rates in 2024, but size and scope are to be determined. Here's Powell from the interview last night...

Almost all of the 19 participants who sit around this table believe that it will be appropriate in their most likely case for us to cut the federal-funds rate this year [but] what we actually do is really going to depend on the evolution of the economy.

If the economy were to weaken, then we could reduce rates earlier and perhaps faster. If inflation were to prove more persistent, that could call for us to reduce rates later and perhaps slower.

There you go, straight from the horse's mouth...

Say what you want about the Federal Reserve – like how it helped fuel 40-year high inflation with near-zero rates during the pandemic... and how it often creates the kind of financial crises it was supposedly designed to prevent – but at least Powell has been a straight-shooter about future Fed policy during his tenure as Fed head.

As Stansberry Research senior partner Dr. David "Doc" Eifrig wrote in an update for his Income Intelligence subscribers last Thursday, this is a "secret that even Wall Street hasn't figured out yet," or it at least doesn't want to believe. As Doc wrote...

We don't need to read the tea leaves here, folks. Powell is telling us what he's been telling us all along.

Every generation of the Fed is different. So it can be tricky to figure out each new chair...

Alan Greenspan held himself out as some wise oracle.

Ben Bernanke opened up communication... believing that the best way to economic stability was to keep the market informed so that it wouldn't be surprised by policy decisions.

Powell goes a little bit further than that. He simply does what he says he'll do.

That's the big secret. If you want to predict the Fed's next move... just believe what Powell is saying.

Investors may have taken Powell's words to heart after hearing them on network television... The major U.S. indexes were down today, with the small-cap Russell 2000 off the most, and bond yields up all along the curve, from three-month T-bills to the 30-year Treasury bond.

CME Group's FedWatch Tool, which tracks bets on fed-funds futures, also showed traders upping their odds for a continued Fed "pause" at the central bank's next meeting in March... from 80% on Friday to 85% today. And maybe most notably, these traders have pushed the entire timeline for rate cuts back by a few months.

We warned about this in December, saying there would be "some disappointment" reflected in stocks when the market realized the Fed might not cut rates in early 2024.

Now, here's the lesson Powell is trying to give investors following the Fed for the rest of 2024...

Follow the data...

We said the market was due for a breather a few months ago based on research from folks like our colleague Mike Barrett, who wrote in the December Select Value Opportunities advisory to expect sticky inflation.

Mike believed that real estate data, as well as expert anecdotes from the housing and real estate market reflecting a resilient market, would keep headline inflation numbers high enough to make the Fed uncomfortable about cutting rates too early.

You could say the same about the labor market data now. (Whether you want to believe this data is another discussion, but it's what the Fed and many other investors trade on, so it's worth following to gauge potential market moves.)

On Friday, Uncle Sam reported the country maintained its unemployment rate at 3.7%, the economy added 353,000 new jobs in January, and inflation-adjusted wages rose 4.5%. In other words, the numbers show growth instead of a recession.

That's not to say there aren't problems...

Now, if everything is going so great with the economy, you might be wondering why the Fed doesn't just keep rates where they are instead of cutting them.

This might be part of your answer... Consider the nearly $9 trillion in government debt (of $34 trillion total) that will mature over the next year. Corporate debt, topping $13 trillion, and consumer debt levels are part of the calculus, too, as are unrealized losses in bonds (prices trade inversely to yields) that banks are sitting on since rates went from near zero to above 5%.

Add it all up and Powell is interested in lowering debt costs at some point this year.

If anything was news-making about Powell's 60 Minutes interview, it was his thoughts on government debt (which, to be clear, the central bank doesn't have as much to do with as the U.S. Department of the Treasury and Congress)...

The Fed chair has gone to great lengths over the past few years to avoid "getting political," but he appeared to drop his guard in portions of the interview, some of which didn't make the broadcast cut but were provided in full transcript form of the interview later...

In the long run... the U.S. federal government is on an unsustainable fiscal path. And that just means that the debt is growing faster than the economy... I don't think that's at all controversial. And I think we know that we have to get back on a sustainable fiscal path. And I think you're starting to hear now from people in the elected branches who can make that happen. It's time that we got back to that focus.

I think the pandemic was a very special event, and it caused the government to really spend to ward off what looked like very severe downside risks. It's probably time, or past time, to get back to an adult conversation among elected officials about getting the federal government back on a sustainable fiscal path.

Interviewer Scott Pelley said, "I have the sense this worries you very much." Powell replied...

Over the long run, of course it does. We're borrowing from future generations. And every generation really should pay for the things that it needs... and not hand the bills to our children and grandchildren.

I think this is, again, not controversial. But it's difficult from a political standpoint. It's not our business, really. But I do think it's pretty widely understood that it's time for us to get back to putting a priority on fiscal sustainability. And sooner's better than later.

Of course it is. But he's wrong about one thing. Being fiscally responsible is controversial, even though it doesn't need to be. Spending is the path of least resistance for politicians seeking reelection and taken all too often. I've got Uncle Sam's $34 trillion tab to prove it.

We've gone 'quant'...

If you missed it, Stansberry Research Director of Research Matt Weinschenk joined Dan Ferris and me on a recent episode of the Stansberry Investor Hour.

In the episode, Matt shared insight into the brand-new portfolio solution Stansberry Research has launched to the public – after years and millions of dollars of development. Simply put, this "quantitative" tool does in milliseconds what a human can't possibly do.

As Matt explained, it analyzes nearly 5,000 stocks and filters them through the best metrics developed by our Stansberry Research editors and analysts over two decades to find the best high-quality businesses...

Not only that, the tool then puts the best of the best together into an optimized portfolio designed to beat the market and limit risk, which is exactly what it has done since our team began live-testing to Stansberry Alliance members last year.

You can listen to our interview with Matt for more details... and you can also check out this presentation from Stansberry Investment Advisory lead editor Whitney Tilson, who went on camera to talk about arguably our company's biggest investing breakthrough in 25 years.

Time is running out to claim our best charter offer for access to this new portfolio product. A 50% discount and a bunch of incredible bonuses are only available for a few more hours, so don't hesitate to learn more here.

A sneak peek of America vs. Americans...

One final note: Tomorrow, we'll be bringing you a special excerpt from Stansberry Research senior analyst and Crypto Capital editor Eric Wade's new book, America vs. Americans: How Capitalism Has Failed a Capitalist Nation and What We Can Do About It.

Eric has been working on this book for a while... He first mentioned the project here last July. He also talked about it at our Stansberry Research conference in October. But he has been thinking about the book's ideas for years. And tomorrow, the book will officially be released.

Inside America vs. Americans, Eric explores the problems facing the U.S. economy and everyday Americans and offers up potential solutions, like "sound money." As we wrote in October...

Eric believes America could defeat inflation, runaway fiscal spending, and ineffective government policies if we return to an asset-backed U.S. dollar... which we haven't had since 1971 when the dollar left the gold standard for good...

And Eric makes the case that bitcoin belongs at the same "real asset" table with classes like real estate and gold.

America vs. Americans considers the possibility that a sound dollar and American technical innovation could be used by our government to balance the budget, save Social Security from being insolvent, reduce our taxes, eliminate involuntary poverty, and give education to everyone who wants it.

The idea of an asset-backed dollar is only a part of Eric's proposed approach to fixing the American economy. In the excerpt we'll share tomorrow, Eric introduces the most critical element of his plan.

America vs. Americans has already been getting positive reviews, like from Kirkus Reviews, which says the book is "an enticing look at government reformation that manages to bring something new to the table."

If you already know you're going to want to read it, you can preorder America vs. Americans now, before the official launch tomorrow. Either way, stay tuned tomorrow for more details on Eric's ideas in the book... and an excerpt straight from its pages.

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In today's mail, feedback on Part I of our annual Stansberry Research Report Card... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"Thanks for publishing [Part I of the Report Card] as I'd been wondering. When will you be doing part 2?" – Subscriber S.C.

Corey McLaughlin comment: Thanks for the note, S.C. You can expect Part II of our Report Card later this week.

All the best,

Corey McLaughlin
Baltimore, Maryland
February 5, 2024