The Fed concluded its January meeting, and as expected, took no action. Most Fed Governors voted to maintain the current fed funds rate with two dissents favoring a small 25bp (.25%) cut. The market shrugged and finished flat(ish) to up small depending on your favored index. This was a reasonable reaction.
Many are still focused on Fed actions as a lever to blow up an even bigger asset bubble than the one we currently have. US equity indexes are trading at/around all-time highs. Gold and silver are blowing through record prices every single day. Uranium cracked $100 while oil has rebounded hard from recent weakness. Assets are gaining value over continually-debased fiat which is losing purchasing power by the day. If you think this means the DKI portfolio, which is heavy in commodities and dollar alternatives, is performing well, you’ve guessed correctly.
It no longer matters what the Fed does, what Chairman Powell says, or what President Trump wants. The Fed has cut by 175bp over the past 16 months while the yield on the 10-year Treasury is roughly flat with where it was before this cutting cycle began. That’s because the Fed only controls the overnight rate and the bond market is correctly pricing in higher long-term inflation. President Trump wants lower borrowing rates. He’s almost certainly going to get a lower fed funds rate when he replaces Powell in a few months, but the bond market is under no obligation to accommodate the President. Pundits were focused on Chairman Powell’s comments about Federal Reserve intentions and independence. Those are also irrelevant. Powell will be replaced in a few months so his views will no longer be represented in a short time. Regarding Fed independence, that was only a polite fiction never reflected in reality. If you want a short list of political pressure applied to the Federal Reserve over the past 100+ years, check out our article, President Trump, The Fed, and What Really Matters. The only way we’ll get lower interest rates is if Congress stops overspending. I don’t think that’s going to happen so invest accordingly or feel free to reach out if you want some help.
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