Federal Reserve Governor, Kugler, resigned early, and President Trump has the opportunity to select her predecessor. The President will also be able to replace Chairman Powell when his term expires next May. As usual, FinX (Formerly FinTwit) and the financial press are losing their minds that President Trump has the opportunity to select the people he wants which means he’s “politicizing the Fed”. Yet again, I’m about to disagree with all sides.

 

Why the President is Wrong:

What President Trump is doing is unseemly. Castigating Chairman Powell constantly in public is counter-productive. It means that whenever Powell leads the decision to lower rates, it will appear as if he’s bowing to the demands of the White House. In negotiations, I like to leave the other side room to come over to my point of view. Never make someone lose face for agreeing with you. Even worse, the Fed cutting the fed funds rate only affects the overnight rate. The last time they did that, the yield on the longer-dated securities rose as the bond market priced in higher future inflation. Trump might get what he wants (a lower fed funds rate) and not get what he really wants (lower borrowing rates for corporations and mortgages). Every president wants an accommodating Fed. It’s just better to handle these things behind closed doors because the bond and foreign exchange markets respond to appearances.

 

Why Powell is Wrong:

Powell kept the fed funds rate far too low for far too long. He was late in hiking, and early in easing. People can complain all they want about the Fed being politicized, but last summer, I wrote that the Fed easing just ahead of the November elections would make the Fed appear to be trying to keep their preferred party in power. It’s no secret that Powell and almost everyone at the Fed despise President Trump. Cutting rates just before an election made the Fed look like they were on the political playing field. That’s especially true when the always-understated CPI still hadn’t (and still hasn’t) returned to the 2% target which I maintain is 2% too high. The employment figures just turned last week, but were generally positive last September when the Fed cut prematurely. It wasn’t President Trump who made the Fed look political. He just does it louder than others.

 

Why the Press and FinX are Wrong:

I consider all the pearl clutching to be performative. People are outraged that the Fed is being politicized – Where have they been for the past century? The reason the Fed exists is to allow the government to debase fiat and steal from us slowly. Think about inflation as a reduction in purchasing power. Where did that purchasing power go? It was stolen by the government and used to spend on their own priorities. The inflation we experience is directly related to Congressional overspending. They used to have to tax us to fund their preferred spending which forced Americans to decide whether government largesse was worth the tax bill. Now, with the Federal Reserve in existence and the link to hard money (gold) severed, we have $37 trillion in debt, a multi-trillion-dollar deficit every year, and another $200 trillion (or so) in unfunded off-balance sheet liabilities. The Fed is one key reason for the massive growth of government. I can’t imagine a more political role in any country that that.

 

Let’s look at some history as well. FDR had his New Deal which represented a huge increase in government size and scope. Much of our unpayable off-balance sheet liabilities like Social Security are due to FDR’s policies. The Fed made that possible.

 

Later, President Johnson had his Great Society which caused another big increase in government size and spending. That required the Fed to manage all the additional fiat. In addition, President Johnson famously slammed Fed Chairman, Arthur Burns, into a wall; literally strongarming him into lowering rates prematurely.

 

President Nixon disastrously took us off the gold standard in 1971. It caused a huge increase in inflation, an exponential increase in government debt, and a constant reduction in living standards. It also wasn’t his fault. Foreign countries had figured out that the US had issued more dollars than it had gold in its vaults. They started turning in their dollars for gold. Had Nixon done nothing, the US would have run out of gold and merely had paper dollars in circulation backed by nothing (similar to what we have today). All Nixon could do was recognize the reality that our government had spent more than it had and the Fed had cooperated in accommodating that excess spending.

 

Before Powell took over, Janet Yellen was the Fed Chair. She famously said that her biggest regret was not creating more inflation. Would any of you be happier had she succeeded? Inflation encourages consumption. Stable currency encourages saving and investment. The latter is effective in building long-term national wealth. The former is unsustainable.

 

The Fed has always been political. Politicians have always wanted accommodating policy. Congress has always wanted to spend more than it should. Today’s hysteria exists because President Trump is great at getting reactions out of people. Sometimes, that’s useful. In this matter, it’s not. I think Powell hasn’t been a success at his job, and will likely turn out to be better than whoever replaces him. There’s no sense in getting upset about a new Fed Governor or a more dovish future Fed Chair. Either way, Congress is going to overspend. As Lyn Alden @LynAldenContact says, “Nothing stops this train” which means that the dollar is going to be debased into oblivion regardless of what the Fed does.

 

Your best course of action is to prepare your portfolio for higher coming inflation. At DKI, we’ve done that. Yes, I “snuck” a commercial in here. If you want help with this, click here.

 

And Now the Democrats:

I just criticized a Republican President and a Republican Fed Chairman. I’ve regularly criticized Republicans for running for office claiming they’d be fiscally responsible only to see them take huge Democratic budgets as a baseline and increase spending from there. Right now, the Democrats are enjoying the Republican firing squad between the White House and the Federal Reserve, but they’re not blameless here.

 

Judy Shelton – Hard Money Advocate:

The Democrats are playing up the “politicizing the Fed” line in public, but let’s look at their track record. In general, the party has favored more spending, more dollar debasement, and ultra-loose Fed policy. During the first Trump Administration, he nominated Judy Shelton @judyshel to the Federal Reserve. Shelton drew criticism and concern because she’s a hard money (gold) enthusiast who has advocated for a 0% inflation target and has questioned whether we need a Federal Reserve at all. Is anyone surprised I thought this was a fantastic nomination? At DKI, we’re on team #EndTheFed. Every single Democratic Senator voted against Shelton, and with a couple of Republican “no” votes and a couple more not present due to Covid quarantine, her nomination failed. This means the Democrats voted against a hard money advocate and are now saying yet another easy money advocate would politicize the Fed. It’s hard to escape the conclusion that the party doesn’t have a view on monetary policy, and just likes to criticize anything President Trump does.

 

The BLS Kerfuffle:

President Trump just fired Bureau of Labor Statistics (BLS) Commissioner, Erika McEntarfer, leading Democrats to claim the President was politicizing the BLS, and to wail that the firing is a threat to the integrity and independence of Federal statistics. Do a web search, and you’ll see endless political operatives and “analysts” claiming the President’s action is what threatens the integrity of the entire system. Let’s examine the data before drawing conclusions.

 

President Trump is focused on last week’s 258k downward revision in recent employment reports. DKI has frequently commented on the inaccuracy of the BLS and I’ve written dozens of pages noting the consistent trend has been for the agency to report positive job results when everyone is paying attention, only to adjust those numbers down by significant amounts in the less-watched later revisions. The trend was so severe, that I stopped tracking the data and stopped using it for analysis. It was useless.

 

McEntarfer was a Biden appointee who also presided over an 818k downward revision for the year ending in March, 2024. There was also an 832k downward revision across three months in 2023. In fairness, that last revision took place on McEntarfer’s watch, but the initial data was released before she was in charge.

 

Regardless, we’ve seen massive downward revisions covering 2023, 2024 and 2025. Is President Trump firing McEntarfer really the event that destroyed the integrity of the BLS, or has the BLS destroyed its integrity by constantly publishing nonsense. I think there are three possibilities for what’s happening.

 

• Politics: I’ve previously suggested that the inaccurate data presentation might be politically motivated, and President Trump just suggested the same.
• Bad data: James Lavish, who I respect, has made a convincing case that the BLS is getting bad data at the beginning and needs more time to publish accurate results. Michael Shedlock (Mish) is a member of the DKI Board of Advisors and has been tracking BLS data inaccuracies for years. This is not a new problem.
• Incompetence: Maybe the BLS isn’t politically motivated, but is unable to find a way to collect and report accurate data.

 

In the end, reporting accurate data is the job. If the BLS can’t find a way to do that, then they should expect to be fired. Right now, Democrats are focused on the firing. I think we should be asking why the Biden White House didn’t fire McEntarfer for constantly producing bad data. The integrity of the institution is being threatened by reporting “data” so bad, the revisions far outweigh the beat/miss vs expectations. Firing the person who is responsible for producing the bad data isn’t a threat to the system; assuming the real goal of the BLS is to provide us with accurate data.

 

What do you think? Are any of the parties here blameless? What would you do if you were in the Oval Office or a Fed Governor?

 

 

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