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Well folks, we just had the Federal Reserve presser and the market had a little bit of a heart attack for a period of time. Unclear what this is going to do longer term, but I will give you the bottom line of what JPOW just said and it's not what we want to hear. We did not get any setup for a September rate cut.
Instead, JPL basically told us we should be grateful that he's not raising rates because inflation is already showing up in goods prices. In other words, be happy rates ain't going up. What? That was not what we were expecting getting into this meeting. The market broadly has been pricing in an over 60% chance that we're going to get a Federal Reserve rate cut of 25 basis points in September.
And that would potentially set up either uh cut, skip, cut, or cut cut. Well, the odds of that just got poopy dupied and they have plummeted by uh nearly over 10% already. I mean, we're down we're less than a coin toss now chance of getting a rate cut in September. And I think as more economists update their projections and you start getting the bond market trading on this, we will see these September rate cut numbers change very rapidly, especially over the next two days as we wait for the next Fed jobs report.
But what we also got from JPAL in addition to this comment of, hey, be grateful we're not raising rates right now, is this comment that we're going to wait and see what the data tells us. And then people are like, all right, cool. So like if the job data comes in weak or you get a cut and he's like I don't know we'll have to wait to see what the data tells us and people are like what this is not what we expected from a quote unquote transparent Fed.
Usually when the Fed is getting ready to cut in the next meeting they tee it up. You know they put the ball on the tea cuz they don't know how to play real baseball. So they put it on they play tea ball. They put it on the tee and they're like, "All right, let's get ready to swing." And they tee it up.
No tea. Okay. No bat, no tea, no ball today. JPAL took the ball and left. Uh diabolical. Okay. In addition to that, people are like, "Okay, well then if the data on Friday comes in bad, like are you going to cut at that point?" Don't know. We'll have to wait and see for the data. You know, right now we just want to pay attention to the top line of the unemployment number because we're seeing the supply of labor go down and the demand for labor go down, which is a sign of a weakening economy.
The only reason the supply is going down really right now is because of immigration policies, which we'll see how, you know, that affects the economy longer term in terms of consumer spending. But I mean, consider for a moment when you have ice raids reducing the supply of labor, at some point those ice rates probably chillax uh after sort of the political wave of it all goes by and then you still have a weakening economy.
So then you still have demand weakening and if supply stabilizes at some point, you're going to see the number show up. I think that's what JPAL's trying to suggest when he says, "Oh, well, you're going to have to pay attention to the topline number." But he's never told us before it's the topline number that matters.
Usually it's always been the underlying metrics. How many job openings do we have? What are the quits levels? What are the uh uh you know um layoff rates. He didn't mention the word layoff once today, which was mind-blowing to me because in previous Fed pressurers, he's always talked about how important layoffs are.
And as soon as we see layoffs, we're screwed. Basically, he didn't even mention that today. So, he was really really like this meeting today felt like it was just designed to be a middle finger to Donald Trump. That's what it felt like. Like, we're we're not cutting. We're not interested in any of your comments.
In fact, like look at this most diabolical moment here from Powell. Somebody asked Powell, "Hey, like are you going to leave?" You know, basically like Donald Trump's trying to get you out like do you have any comments on this or whatever whatever whatever. Before the guy's even finished like asking his question, Jpal just looks down and closes his binder and walks out essentially.
Look at this diabolical. Sorry, I do not have any update for you. Thanks very much everyone. Basically, do you have any update on on Trump asking to leave? It's just like that was just his mood today. Right. So, I'm setting you up with a few things here. Right. We're setting you up with this mood of close the binder, walk out, take the ball, and leave.
We're setting you up with this mood of pay attention to the topline employment number. That could be a hint. We've never heard of JPL talk about that before. Are we going to get a really bad unemployment report this Friday? Cuz he's never just talked about the topline number. And then he's like, be grateful we're not raising rates.
So, I don't know. I feel like we're kind of expecting something on Friday that that maybe says, hey, that the economy is hot and we should be grateful that rates aren't going up, which theoretically should be good for stons, but stons aren't really happy because he's also setting us up for a long wait.
Now, I'll explain that in just a moment. I just want to remind you that in 2 days, coupon code release the files expires. Remember, you buy once, you get lifetime access, all eight courses, the trade alerts. We got we got some coming starting tomorrow, which will be really fun. Um, then we've got uh some some new trading challenges starting tomorrow.
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So JPA then gets into this idea that inflation may actually take a lot longer to see from inflation to like from tariffs. So we might not be able to just say that inflation is going to be a one-time phenomenon due to tariffs. In fact, he once again gives a middle finger to Donald Trump and he talks about uh the Donald Trump washing machine tariffs.
He says in 2018 under Trump won we tariffed washing machines which then you would expect the prices of washing machines to go up but that's not actually what happened. A weird phenomenon happened which could be defined as corporate greed and it was that the prices of washing machines and dryers went up.
In other words, both prices went up. So what you end up with is what Drum Powell calls this phenomenon of companies will cross the street in a group. In other words, some companies will take advantage of tariffs and the discussion around tariffs to raise prices. So basically, hey, we're having a tariff sale.
Get in before the tariffs. Oh, prices are up because of tariffs. It's not our fault. It's because of tariffs. It's just a middle finger to Trump, but it's also a way of saying, hey, yeah, in 2018, that is a phenomenon that happened under Trump tariffs number one. So, he's not wrong to say it, but he's very clearly highlighting Trump's uh uncertainty that is that he's creating uh in this sort of tariff drama around why the Fed is going to go slow.
Now, this was probably a pisser for markets as well because Walter Pal said, "Hey, look, labor conditions are solid. Payroll's averaged 150,000 jobs so far this year. Conditions in the labor market are broadly balanced." He talked a lot about how tariffs increase unease and they delay when we get the data.
We don't know yet how many months of data we need. You know, everybody thought in April, okay, we're we'll have our tariffs in April. We'll be liberated and then it'll take three months to see the data and then we'll be able to make a decision. Well, JF here is basically implying we might not do rate cuts at all this year.
Why why do it this year? What's the rush? Let's just wait until the data tells us what the full effect of tariffs is. Mind you, we still have no idea where tariffs are going to end up because they're still being negotiated. Literally during the press conference, you've got Donald Trump announcing 50% tariffs on Brazil exempting the aircraft manufacturer Embrier while at the same time uh removing the dimminimous expense exemption which will affect obviously you know Amazon to some extent, Teimu, Sheen and some of these other Chinese players.
Sounds like because he's in discussions with China, he's trying to kind of like re you know ramp up the pressure on China a little bit and get some negotiation leverage on China. That's what it sounds like to me. But anyway, you know, JPAL tells us, "Hey, so far payrolls are averaging 150,000 jobs so far.
This is good. I I'm looking for hints for this Friday jobs data." The only thing I can get is that he's leaving a big hint here that something about that headline unemployment rate is either going to be really good or really bad. And you know, that's coming up on Friday. Maybe nothing changes and maybe he didn't know, right?
But that seems to be the hint that markets are reacting to. He also talks about averaging out GDP that you kind of have to average out the first quarter and the second quarter and if you do that you see growth is like between 1 and 1 and a half one and 1.2% 2% which is way lower than the 2 and a.5% rate where we were last year for final domestic purchases.
And he sees that as a risk that yeah, look, the economy is slowing. Banks are happy. The labor market is happy right now. Delinquencies are decently happy right now. They've sort of peaked out. Uh it's not like they're skyrocketing. So things seem fine right now. And that gives the Federal Reserve the luxury of waiting.
Now when he's asked about the two dissents, because obviously we didn't cut rates today. We already knew this. We already anticipated that Bowman and Waller would descent and that they would want a 25 basis point cut. Now, we already anticipated that. That's exactly what happened. When Powell was asked about that, he said, "Hey, you know, they have a different opinion and that's what you would expect in a time like this because there's so much uncertainty and we can't really give you a setup on the data because we don't know.
This is unique and we're just basically going to wait." Not great. Then he also poo pooed the effect of the big beautiful bill because he said, "Hey, you know, the reality is a lot of the big beautiful bill is just extending tax cuts that were already previously in place that are just expiring." And so, yeah, there'll be some stimulus, but not really a big contributor.
I take some issue with that because, you know, the capital expense deduction, the 179 getting boosted back to 100% is pretty powerful and I think should be stimulative, but maybe that's the small stimulus he's talking about. But the feds downplaying the big beautiful bill. They're upplaying the impact of tariffs on goods.
This to me just seems like a war between Donnie. And now the question is how pissed is Donnie going to get? Because if Donnie listened to this stream, which I doubt he did, uh he'll just get a TLDDR from like Kevin Hasset or whatever to go like it's time for it's time for Powell to go. You know, that that could lead to some more volatility in markets.
I don't actually think Trump will ultimately fire Powell, but this was a this was a pretty ballsy meeting from Powell. Again, no setup for a rate cut in September, telling us to pay attention to the topline unemployment rate, something he's never done before. And he's not giving us a setup on the data.
He's basically like taking away all of the thing things he used to give us as guidance. he's taking away and he's basically saying it's going to take a lot longer for risks and data to really be fully understood and we have no effing idea. And I think that's why when you look at markets today, markets are like crap.
We've got uh the, you know, 10-year rising, what is this? Uh 4.2% uh 4.2 basis points right here. We've got uh the stock market losing the lead. I mean, this is our uptrend line. lost it immediately here. Down 25 basis points now on the cues. Uh so, you know, we'll see. But obviously market's not very happy.
Uh and so we'll see how this ends up filtering out through the coming days. Most importantly now the big highlighter on that Friday jobs report. I'll be covering it live. So I'll see you there at 5:30 in the morning. Make sure you're also getting your alpha report every single day sent to your phone.
However you want to get it, you know, you want Discord, you want phone, whatever. We'll make it happen for you. Make sure you get that alpha report. Uh, sign up at mekevin.com. And remember, use coupon code release the files because if there's one thing we all know, it's that Jerome Powell will cut rates before the Epstein files ever get reall.
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