Another Quarter Point Rate Cut

Well, the Powell put is on.

For the second straight meeting, the Fed cut the federal funds rate by a quarter percent on Wednesday. In an even more aggressive move toward monetary easing, the FOMC also announced balance sheet reduction will end in December.

However, Federal Reserve Chairman Jerome Powell tried to keep the party from heating up too much by downplaying the possibility of another cut in December.

The FOMC voted 10-2 to cut rates. The federal funds rate now sits in a range between 3.75 and 4 percent.

As he did at the September meeting, Trump appointee Governor Stephen Miran cast a dissenting vote, indicating he wanted a half-percent cut. On the other side of the coin, Kansas City Fed President Jeffrey Schmid voted NO, signaling that he opposed any cut at this time.

Powell hinted that the central bank could end balance sheet reduction earlier in the month. The FOMC followed through, announcing an end to quantitative tightening as of December 1st.

In practice, this means the central bank will stop reducing its holdings of Treasuries and mortgage-backed securities, maintaining the size of its balance sheet at the current level. So, this too represents a way of loosening monetary conditions.

Even though Powell has filled up the punchbowl and cranked up the easy money party, he is also trying to tell the giddy partygoers to temper their expectations for a December rate cut.

That’s because the Fed just aggressively eased monetary policy despite persistent inflation. In a sane world, the central bank would be holding rates higher to strangle inflation once and for all. It might even be hiking rates.

But we don’t live in a sane world.

We live in a world with a debt black hole and a bubble economy created by decades of easy money that can’t function in a modestly higher interest rate environment.

Powell knows this, so he has to at least talk like a central banker worried about inflation even as he’s cranking up the inflation machine.

But this is nothing but talk. Fed officials can say all kinds of things. It’s important to pay attention to what it does. What it did was cut rates and ease monetary policy in an inflationary environment.

Rising consumer prices are just one symptom of monetary inflation. We also see it showing up in asset prices such as real estate and stocks. This is precisely why the stock market sold off when Powell tried to put out some hawkish messaging.

The reality is the Fed is in a Catch-22. It simultaneously needs to hold rates higher to deal with inflation and cut rates to try to keep the economy from being completely sucked into the debt black hole. Make no mistake, no matter what you hear coming out of the mouths of Fed officials, they’ve picked inflation.

Let’s take a look at the weekly market action here. Gold is down a little more than $100 to check in at $3,995 and a 2.9% decline since last Friday’s close.

Silver is oscillating now between a slight gain and a slight loss this week. The white metal currently trades at $48.72, good for a slight 0.2% weekly gain as of this point with a few trading hours left before the Friday close.

Platinum is down 1.9% and comes in at $1,584, while palladium is up 2.4% to trade at $1,462 an ounce.

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