Everyone knew the assault on the Fed was coming

When the Fed cuts rates is the top issue again. The CME Fed Watch tool has a less than 5% probability for January. Big names like Goldman Sachs and Morgan Stanley expect cuts in June and September. That was before the current assault on the Fed and sure to be revised. The reading for April has already moved down from 45.2% a week ago to 32.6%.

Since the Trump goal is to prove “cause” for firing Fed officials, the Supreme Court could do us all a big favor by deciding the case against Fed Gov Cook is without merit. As in the Letitia James case, Cook is charged with lying on a mortgage application, naming two places as the primary residence. It’s a hard case to prove, including evidence of intent plus apparently a late disclosure. This case as well as the Powell case seems to stem from  Pulte, the director of the Federal Housing Finance Agency, who himself has conflicts of interest up the wazoo. In other words, classic Trump cronyism and corruption.

We get Dec CPI tomorrow. The Bloomberg forecast median is +0.3% in both headline and core for a year-over-year at 2.7%. This is not what the Fed watches, preferring the PCE, but can’t avoid seeing it and everybody else does. It’s a direct contradiction of the Trump call for lower rates as long as the Fed mandate (from Congress) is to manage inflation and keep it at roughly 2%.

Forecast

The assault on the Fed, shoved along by Trump war threats, brought about what  Bloomberg names the “sell America” trade. Everything fell on the story—the dollar, gold and silver, equity index futures. Everyone knew the assault on the Fed was coming but thought it would be the naming of a Powell replacement who would pester and harry Powell as a kind of shadow Fed.

Since Powell is a Boy Scout and also a very smart and careful guy, the charges are probably easily proved false. But we are still left with the uncertainty of a long, drawn out court process and a ton of chatter, much of it lies.

It’s possible this huge announcement affect will get tamped down but the core problem is not going away. It’s hard to see the dollar recovering. The next few days will be critical for assessing the longevity of the problem.