🚨 Powell's speech was surprising. Here’s what you need to know:
1️⃣ Jobs: Seemingly stable, but the collapse of immigration means a fragile balance. If demand collapses, unemployment could rise quickly.
2️⃣ Inflation: Tariffs are pushing prices up, although they are still generally close to the target. But the real danger? 👉 Policy mistakes could lead to a second wave of inflation.
⚖️ Translation: The Federal Reserve is stuck in a dilemma. Excessive tightening = job collapse. Too rapid easing = return of inflation.
3️⃣ Shift in policy:
• The interest rate indicator for 2020 was a world of "low inflation + low interest rates."
• 2025 = "high inflation + high interest rates."
• The interest rate indicator is over. Back to targeting flexible inflation. (Yes, they admitted that the old rules are no longer effective).
4️⃣ Between the lines:
• Increases are over. Cuts? Only if the data stumbles. • Tariffs = one-time shock, not an immediate tightening catalyst.
• Contraction in labor supply → lower potential growth, and higher long-term neutral interest rate (r).
🔥 Summary:
The Federal Reserve is at a crossroads. The dollar remains strong... but the real deal for a breakout at the turning point may be Bitcoin.
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