Why The Fed Rate Cuts Were A Mistake | Michael Kao
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Yeah. Thanks for finally having me. Yeah. I apologize about the scheduling snafu a couple of weeks ago, so glad we could do this. That's
all good. Well, you know, luckily, there's a ton to talk about. So, you know, we we'll have no shortage of that. I wanna roll out the red carpet for you a little bit because, you know, back in, like, late August, if we rewind back then and we just think about what was the the sentiment at the time of of the current macro landscape is, There's a lot of there's a lot of concern about growth. There's a lot of concern that we are trickling our way into potential even like a recession, and this was around the time when when the fed actually came out and cut 50 basis points. But you had a you you pu
you.
Unpack, like, what what was driving that analysis, and then how has it panned out a few months later since? Yeah.
I I guess, you know, apropos to your tweet earlier about pronouncing Pusillanimous, I I guess we could make today's, session all about alliteration because I have a whole cast of characters. It's not it's just it's not just Pusillanimous Powell. We now have bold Bowman and yellow bellied Yellen as well to join the crowd. So so I I think when I wrote that piece, I I highlighted a number of different factors. You know, one was that I think well, first of all, it's it was very unusual, for I I didn't I made the case back then that he should not most when most people were calling for, oh my gosh.
It definitely seems that way. This is a very simple question, but, like, why do you why do you think they cut 50? You know, you mentioned Bold Bowman, who was the only dissenter at that time. And, you know, she's starting to to look to be proven pretty correct at this at this stage. But, like, what what did it what did it get? Like, why did they cut 50, you think? I'm
still puzzled by that, to be honest, especially with the follow-up 25 afterwards. I'm also a little bit puzzled by why Bowman dissented, and then she kind of she she didn't dissent in in this last one. She kind of made an excuse that, she said that, okay. She's pleased with, the language where they left, you know, the door open, you know, the optionality to pause. So and by the way, I'll I'm proud of this alliteration. I went from pusillanimous Powell's premature pivot to now pusillanimous Powell's potential pause. So so so that so that's gonna be an interesting dynamic, by the way, because, I
Something, Michael, I've been trying to figure out is what has actually driven this resurgent in resurgence in the economy in the last few months? Because, obviously, you know, as you mentioned, the 50 bps got came, and that was basically the the the bottom taking yields and that they've just been surging ever since. But, you know, I'm trying to figure out whether that data in August was just the outlier where it was just deceptively soft, and now we're just back to this return to norm. So, you know, how much of this resurgent in in the US economy has been due to the fed
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