The presidential election is less than a week away. Will Trump or Harris win?
The mainstream media is calling this nonsense. But from what we can tell, Trump appears to have the upper hand. At least that’s what Wall Street is signaling.
Of course, there are no guarantees in life other than death and taxes. This is especially true in the case of presidential elections. Anything can happen on election night. Ballot stuffing, fraud, chad betting. Name it.
What raises questions about the results of this election? Moreover, will voters accept the decided results? Or will the disgruntled supporters of the losers take to the streets and cause total chaos?
What about stocks? Has Wall Street already priced in a Trump victory? If so, and if Trump wins, will stock prices rise further in celebration or plummet? “Buy on the rumor, sell on the news” Shake out?
What happens if Harris wins? Will stocks plummet? So is this a strategic buying opportunity?
This is only part of the question. You’ll have to wait until Tuesday or longer to get an answer. No matter who wins, there are certain facts that will not change.
We know that deficit spending will still be close to $2 trillion per year. We know that rising interest rates are putting a strain on the financial system as banks’ holdings of bonds and real estate assets decline. We know that war is intensifying in Ukraine and the Middle East.
So inflation and chaos are virtually certain. This is exactly what bond investors expect.
Politically motivated decisions
The yield on 10-year government bonds is currently around 4.30%. This is up from 3.70% on September 18, when the Federal Reserve cut the federal funds rate by 50 basis points. Clearly, bond investors don’t think bonds are worth the risk at current prices. They see massive inflation and chaos coming down the toll road to overwhelm their capital.
Moreover, on November 6th and 7th, shortly after Election Day, the Federal Open Market Committee (FOMC) will meet to discuss how to strengthen extreme credit market intervention measures. With Treasury yields rising since the last FOMC meeting, will the Fed pause its rate-cutting cycle?
The answer to this question depends on whether the Fed is willing to acknowledge the problem. Treasury markets showed that the Fed’s initial 50bps rate cut was a mistake. It was politically motivated the whole time.
Shortly before the last FOMC meeting, Senator Elizabeth Warren wrote: letter He went to Federal Reserve Chairman Powell and told him his job was terrible. “Behind the curve.” She called for a 75bps rate cut. After the meeting, Warren called for more interest rate cuts.
Politically motivated decisions are rarely the right ones. When it comes to monetary policy, politically motivated decisions are always wrong. They serve to enrich the ruling class while simultaneously harming those who earn wages and live off their savings.
Warren influenced policy with her own interests in mind. She wants cheaper credit so Washington can continue to borrow and spend. She likes big government. And I want more.
Justifying interest rate cuts
Powell is a politically motivated animal in his own right. Lowering interest rates also serves his interests. Harris’ victory maintained the status quo, including his job. Perhaps, in his view, boosting stocks by cutting interest rates right before the election was a way to preserve jobs.
If Trump wins, Powell knows he will get a pink slip. He’ll have to find a job pretending to work for one of the big banks that his policies support.
In the meantime, Powell has several data points he can use to justify further rate cuts at next week’s FOMC meeting. For example, on Thursday the Personal Consumption Expenditures (PCE) price index for September was released. Like the CPI, the PCE price index reports changes in consumer price inflation.
The PCE Price Index is the Federal Reserve’s preferred measure of inflation. The Fed likes CPI better because it generally reports lower numbers. For example, according to the latest CPI report, September consumer prices rose at an annual rate of 2.4%. The September PCE Price Index report found that consumer prices were inflated at an annual rate. 2.1%.
In reality, 2.1% is a smaller number than 2.4%. Moreover, 2.1% is closer to the Fed’s arbitrarily set inflation target of 2%. So the data justifies the rate reduction. Or is it?
Perhaps the Fed’s real focus will be its core PCE elimination of food and energy. But this is only true in some cases, such as when it helps tell the story the Fed wants to tell. Core PCE is up 2.7% over the past 12 months. Therefore, for now the Fed will focus its attention on the overall PCE price index.
But the PCE price index report isn’t the only additional data point Powell can use. By the time you read this (or shortly thereafter), the Labor Department will be releasing its October jobs report.
The number of new hirings in October is expected to decrease compared to September. This is partly because two major hurricanes in the Southeast put people out of work. The number of jobs will also decrease due to the Boeing strike. So jobs data will be soft and further rate cuts would be justified.
inflation and chaos
Data can be designed to tell the story the author wants. Data manipulated by government agencies is particularly susceptible to the will of the supervising executive branch. Policymakers want data to look good and justify their decisions.
But just because the data tells a particular story doesn’t necessarily mean it does. Some stories may be fantasy. Stories using government data often come from fantasy land.
For example, the story that consumer price inflation is decreasing is generally false. Prices keep rising. It may not rise as fast as it did two years ago. But they are still rising.
Moreover, the rising prices each year are cumulative and compounded. Consumer prices have risen for more than a decade in the past four and a half years. 22% – Changed from 258.115 in March 2020 to 315.301 in September 2024.
So adding 2.4% to that adds up to more compounding benefits than 2.4% just a few years ago. This is according to government data. We all know that price inflation has been much greater than reported during this period.
Here’s the point…
Additional interest rate cuts from the Federal Reserve are coming. Powell calls it this: “Policy gradualism”. Additionally, as we noted last week, if the Treasury market does not cooperate and follow through with the federal funds rate cut, the Fed will likely have to implement more QE to generate yields as desired.
Gold prices are hovering around $2,750 per ounce. It undoubtedly provides a high indicator of the inflation and chaos we are experiencing.
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thank you,
minnesota gordon
for economic prism
A return from inflation and chaos to an economic prism.
