Rabo: Powell's 50bps Cut is Contradictory
Rabo's Every and Marey
“Really? A 50bps cut as a message that the economy is strong? So, if they cut by 75bps the economy is booming? This sounds like something out of George Orwell’s 1984: WAR IS PEACE; FREEDOM IS SLAVERY; IGNORANCE IS STRENGTH.”
Intro: Michael Every and his partner in crime today Philip Marey wrote a polemic worthy of Christopher Hitchens praise post Fed Cut. Their target? Jerome Powell.
No lie, these are powerful no BS observations on Powell’s rate-cut decision alternating betweeen bottom line analysis and sharp sarcasm and ZH does a great summary of the work today titled: Rabobank Goes Apeshit On Powell's Orwellian Rate Cut.
Every’s and Marey’s analysis is quite incendiary while remaining (somwhat) mannerly. 1 Here are their key points followed by the text at bottom.
Every’s Summarized Accusations
Here are the Rabo bottomlined points… with a few choice quotes
Fed Credibility:
The Fed’s decision to cut rates by 50bps is contradictory against its assertion of economic strength.
“Really? A 50bps cut as a message that the economy is strong? So, if they cut by 75bps the economy is booming? ….1984: WAR IS PEACE; FREEDOM IS SLAVERY; IGNORANCE IS STRENGTH.”
Market Behavior:
Market rally driven more by expectations of Fed support than underlying economic fundamentals.
If cutting 50bps and saying all is well was problematic for Fed credibility, so are its happy projections for markets that have already priced a lot of ‘BAD IS GOOD’ news in.
Politically Driven:
The Fed seems to be prioritizing short-term political stability over long-term economic strategy.
Powell had incentive to deliver a big pre-election cut because Trump won’t reappoint him as Fed Chair and may remove him prematurely; his only chance of another term is to please Harris.
Geopolitics:
The cut seems to have ignored geopolitical risks relating to the ME
“The Fed isn’t considering the Middle East at all”
Broader Implications:
This created some blackswans for sure
Read the whole thing (2 reports for Premium at bottom) or the ZeroHedge summary linked up top