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few sets of Fed news. Number one, Jerome Powell getting criminally referred to the Department of Justice. And number two, some big Chris Waller news, leading the odds for potential rate cuts to rise. Uh this is great. uh even though we're still sitting at that uncomfortable 102 spread of 56 which is in shock level possibly as markets price in more risk to the downside said so far stock markets at all-time highs and the question is what is Waller seeing that makes him nervous and what do we think about JPA's criminal referral to the department of justice here you could see the following representative Anna Paulina Luna Um, this is a a Florida 36-year-old representative.
She got reelected in 2024. Remember, in the House, you have to run every 2 years. And she got first elected in 2022 through an endorsement of Donald Trump. uh as a result or I should say subsequent to her winning thanks to uh in part her endorsement from Donald Trump, she has become one of the largest uh mouthpieces for the MAGA movement and Donald Trump.
So I say as neutrally as possible, she's a Trump shill and Trump disciple. Okay. The reason I say that's a neutral point of view because it is absolutely insane and ridiculous to criminally refer Jerome Powell to the Department of Defense to investigate perjury regarding his crazy $2.5 billion building.
Okay, first of all, Jerome Powell is probably going to retire from the Fed before this project is ever done. This project was approved not only by the Fed Board of Governors, but also Congress in multiple sets of testimony around what's going on. This is a 1935 building that began construction 1935, finished construction 1937.
And the Eckles building is considered a historic building in Washington DC. So yes, could you just as a real estate developer look at, you know, look at this building and say, "Hey, I'm going to tear down this building for, you know, 20 million bucks thanks to the asbestous containment you're going to have to do, and we are going to rebuild it uh for, you know, $500 million and have a beautiful government office." Absolutely possible.
I mean, even if you spent 500 bucks a foot on this building, you'd probably be at substantially less, you know, a fraction of the cost for this building. Why then are these cost overruns so high? And what risks are there of Jerome Powell being actually criminally indicted or charges being brought against him?
Well, first of all, one of the reasons, and I'm not here to shill the expense of this, but one of the reasons this building has such high expenses are because a you have to use prevailing workers because it's a government job, which means the wages that you're paying are often 2x what's normal. In addition to that, this is not like the home renovation where, you know, somebody goes in and says, "Hey, you got asbestous.
What are we going to do about it?" Eh, it's fine. just leave it. Which is not highly uncommon because asbestous isn't actually a problem unless it becomes fryable as in people like rub it or it gets disturbed and then it goes airborne. That's when asbestous is really bad. In fact, back in history, we used to use asbestous to cover Christmas trees.
You could literally look it up. It was a great like snowy kind of product uh for covering uh your Christmas tree with the look of snow. Give your tree natural or artificial, you know, uh the give your tree natural or artificial. I don't know what this branding is here, but the soft snowy beauty of the outdoors with easy to use snow flock.
And look, snow flock is also fire retardant. Asbestous is actually such a great fire retardant. They partially unbanded in the 1990s because as long as it's not in a fryable condition and floating around the air, it's actually an incredible product. It's fireproof. The Greeks discovered it uh because they basically doused it in oil, lit it on fire, and they realized the asbestous never went away.
And you could actually Google asbestous mining, and you could see back in the day people without masks just drill mining asbestous. These are the people who got you know the messyloma and all the issues related to actual actually working with brake pads asbestous brake pads and the dust associated with them.
Not people living in their homes who have asbestous ducks but less on asbestous more in the fed building because asbestous has such a negative reputation uh and related to the uh Eckles building the cost to actually appropriately contain asbestous is enormous. Not only do people have to be trained, but the procedures that you have to use in terms of like bagging asbestous or creating containment facilities, shower facilities for the workers, the P100 respirators, uh the the taped up joints around your wrists and legs and your your your uh Tyveck clothing that you have to basically replace every single day because it rips every time you take it off.
It's a disaster. And so, again, I'm not here to defend. I'm just saying when the government's doing a renovation on a historic building that has a high water table which is leading to flood issues and foundation issues and you have asbestous issues and you're trying to do it at prevailing wages, it gets really expensive really fast to do a renovation for the government.
So yes, would it be cheaper to demo this place and rebuild? Yes. Are they doing things likely blatantly illegal that somehow Jerome Powell is in charge of? No. The the reason people like Anna Pelina are saying this is criminal what your own pal is doing is because Donald Trump wants lower rates. He's trying to pull a turkey or greece where or or you know uh you know worse like uh well there are plenty of other examples like a Hungary is another good example.
He's basically trying to pull a turkey where the government takes over the Federal Reserve, forces interest rates lower. In the short term, they go down, but you actually end up just inducing inflation, and you break the reputation of the United States being that pure place to invest where you have an independent Fed.
That's actually what this building is a symbol of. This building is not just a building. This is a symbol of American freedom right here. This is a sing a signal that there is a difference between monetary policy and the government. Now you and I might look at this and go come on man they print money for the treasury so they can issue helicopter money.
This is true. Their whole premise could be flawed. This idea that you know a monetary institution can lower shocks or recessions. I mean we've had some pretty big recessions. Look at 08 right? We might have another big one. Uh who knows? Fed might be too late. But the point is to argue that the Federal Reserve authorized by the 1914 banking acts uh is all of a sudden uh you know the leader or the chair of the Federal Reserve Board of Governors is now all of a sudden a criminal.
It's really ludicrous. And what it is is just political posturing by people who benefit from shilling Trump. like she benefits by having a strong MAGA base going Trump doesn't like Don Powell okay tweet let's let's arrest him and you know this is basically the Trump meeting around oh well you know I won't fire him you know unless of course there's some kind of fraud or whatever that's basic like Trump is having other people do his dirty work for him because he knows the Supreme Court is really really anti the removal of Fed independence Now that out of the way, this idea of firing JPOW, it is leading to a little bit more of a divergence in that yield curve, which isn't great because it it does have some unpriced uncertainty.
I do think it's worth looking into what Waller said and how that could be affecting the market today. I do just want to remind you that I got a text from my team that we do have the coupon code Mr. Too late, which is ironic, expiring later today, which means we'll have another price increase for the Meet Kevin membership.
We do have the lifetime option available right now. So you can get access to all the courses, the alpha reports in the mornings, everything. There's like no choice for you to make. It's just buy or not buy. We make it very easy for you. Uh AI, social media, Trumponomics, the new lectures coming out on how to take advantage of Trumpomics for um you know, business, do-it-yourself property management, real estate zero to millionaire, all of it.
So if you want to lock that in, go lock that in over at meet.com and use coupon code Mr. Tool. So that said, let's go take a look at this Bloomberg interview with Mr. Waller. Now Mr. Waller made the news yesterday because yesterday Mr. Waller was nervous about the potential that we are starting to see private payrolls slow down.
uh that basically there's no growth in p private payrolls outside of really late cycle sectors like health care or of course then non-p private which would be uh you know public jobs like state and local government jobs. This is problematic because it's a suggestion that somebody at the Fed is starting to wake up to the realization that we are starting to see a quote sharp slowdown in private sector wage growth.
This is leading Mr. Waller to say we should have a rate cut in July because we need to get ahead of the potential damage we're causing to the economy. Now, currently markets are only pricing in about a 50 59% chance of a rate cut in July. However, after these Waller comments, they are now pricing in a 4.7% chance of a rate cut in July.
Uh, sorry, 59.4% in September, 4.7 in July. So, that's gone up from basically zero following these Waller comments. Some people think that Waller is really just applying to be part of the Federal Reserve, which makes sense. He is in the third place in the betting markets with about a 10% chance of being replaced as the Fed governor.
Though Walsh and Hasset have greater chances, I personally hang my hat on Hasset because Hasset is a little bit more of a kneebender than WSH who has been very stubborn in the past when it comes to uh the Federal Reserve printing money to support recessions. And if you're the president, you want somebody who's the Fed chair who's basically going to print as much money as you need when you need it.
With that said, let's give a listen to uh this interview between Waller uh and Bloomberg. The luxury of waiting. Have we lost that already? s igabytes, . No, I think we haven't. Like I said last night, the headline numbers for the labor market, what we're seeing are okay, but it's like when you get underneath and start looking at the data, the private sector is not doing as well as everybody thinks it is.
Like most of the half of the employment growth we saw last month was in the public sector and that means the private sector is not doing particularly well. So, right, which is important because once that starts going negative, it's a poopa dupa. Um, I was just joking that uh, you know, if you're walking on a lake and the ice is frozen and it sounds safe, but when you start hearing cracks, and that's what I feel like, it's too late once you go through the ice.
So, you've got to start. Interesting. Too late once you go through the ice. Uh, invoking Mr. Too late. It's like a reminder of the coupon code again. No, it really is. It's kind of true. Like if the Fed misses preventing this recession, it doesn't matter how much they're going to cut rates, you're not going to save the market until you turn the money printer back on and you're going to increase the debt a lot
in advance before you have that happen. How do you square that with what we've heard from corporate America so far? What corporate America has told Lisa sitting down with Scott Kirby of United Airlines talking about a rebound in the second half? pumping their stock, bro. Like the straight answer is they're all trying to pump their stock.
They don't want investors to be nervous that their economy is sucking or their market, you know, their their corporate outlook is sucking. Heard from the big banks so far this week. How do you square what you're seeing in the data with what we're hearing from CEOs? Yeah. I mean, when I talk to CEOs, I get the same thing.
We're we're in just hold pattern in terms of certainly the labor market. They're not hiring. They're not firing. They're just watching. And that's kind of what you see in this underlying private sector data. There's not not much happening. So, it wouldn't take much to sort of tip it. Now, could I be wrong?
Absolutely. I mean, last year we got a couple of weak labor market reports that led us to cut in September and then everything kind of reversed and back uh went back up. So, I'm not saying that couldn't happen again, but it's just we've constantly seen little bits of data continually coming down. The beige book yesterday came out.
uh some other stuff we get out of the jolts quits rates hiring rates these things are not indicating a super healthy private sector labor market as you know you're facing potentially and I stress potentially negative supply shocks on both side of the mandate I want to sit on the labor market just for one further note immigration how are you thinking about that when you look at a labor market at the moment when we have people coming on the program on Bloomberg surveillance on Bloomberg TV every single morning 6:00 till 9 coming on here and saying look at the data unemployment could stay at these levels even with job gains of 50 to 100,000 because of tighter immigration.
How does that factor into your thinking as you look at the US labor market? Well, yeah, the labor market doesn't necessarily have to be affected by it because if workers flow in and they get jobs at roughly the same rate as the existing workers, the unemployment rate doesn't change even though the labor force is higher and when they go back out the same thing happens.
If they leave the employment and leave the labor force, you don't see a big change the uh inflation rate. now can potentially affect the break even rate that you would need to have uh the market going well and that's what we're still trying to kind of get a sense of because you basically brought five years of immigration forward and you know of that 8 or 9 million most of them haven't disappeared so they're still here somewhere whether they're going to work they're not going to work but they're but they're still here I don't where I think the immigration stuff if immigration was a big factor you'd be seeing shortages and you might see some in you know some industry ries, but like I've pointed out that if you look at the new college graduate unemployment rate, it's 7%.
It's much higher than it has. These are not jobs that are being uh opened up because immigrants are are not not coming in. That's it should be just the opposite. If immigrants are leaving and these jobs are open, then the unemployment rate should Yeah. The the issue here is the difference, right? Like immigrants taking jobs are taking different jobs than college grads are.
A college graduate doesn't want to go work at a restaurant or clean hotel rooms. And I'm not saying that all, you know, immigrants are doing that. There's just a higher likelihood. And so, of course, labor market is pretty crap right now. If you don't have a job, if you have a job, it's fine for now.
Go the other way. So that unemployment rate to me is telling me immigration is not the source of the problem. Firms are just holding off on hiring decisions even if their earnings are doing well. That's that's just what I'm saying they're doing on the labor side. I wanted to say there's a mutual friend of ours that feels like he's missing out this morning.
So he wanted to catch up with you as well. He's out in Victor Idaho. He's having a good time, isn't he? Mike McKe joins us now. Good morning, Mike. All right. So he talked to Daly yesterday and Marie Dailyaly. I actually think she had a great uh discussion yesterday. I think she was in Idaho or somewhere.
But anyway, she suggested that we don't want to tighten the reinss on this horse so much that we collapse. In other words, kind of like his ice analogy. You don't want to be so tight. And it's okay to start loosening a little bit. Good morning, John. And good morning, Governor Waller. I would say I'm sorry I'm not there with you, but I bet you're sorry you're not here with me.
Yeah, I know you got it. I've been there before. It's a nice for a July rate cut. But uh how committed are you? Are you willing to dissent at this meeting if the majority votes the other way? Well, I never want to commit to an action before the meeting. Otherwise, if everybody committed before, you don't even need to have the meeting to have a discussion.
So, the goal is to always go to the meeting, sit down, listen to all sides. People will try to convince me of their view, I'll try to convince them of my views. And in the end of the day, you make the decision on what you think is the right the right outcome and the right data uh how the data is coming in.
And right now, I laid out my case last I don't think I could be any more clear I hope as to what my position is and why I think we need to do this. It's just how I read the data and how I think about going forward how you respond to anything that involves tariffs. There's a lot of politics in this decision coming up uh more than usual and I'm wondering Governor Bowman has also suggested she would prefer a rate cut in July if two of you vote for a rate cut.
If two of you were to descend, would you worry about the market reaction to that? You know, one of the things that has always bothered me since I took this job is the criticism that we are nothing but group think. All the meanings are the same. Nobody desends. Nobody does anything. And he's he's setting up his descent.
I think this is healthy. I think this is a turning point in the way we want to think about policy. Some people don't want to cut, some do want to cut. But coming out and making the case either side, that's good, healthy debate. Otherwise, if we're always going to do the same, the joke is why don't you just have one person set policy and send the other 18 FC members home.
So this is healthy. I think this is what you want to see in a democracy. You want to see policy makers have serious open discussion about where policy should go. It doesn't mean anything about politics or anything else. It's make the economic argument and then see if you can convince others to go along with you.
And that's all I'm trying to do. We totally agree with you for the record. We were sick of the group thinking it's good to All right. Whatever. So far, I mean, we got the idea. They're nervous about the payroll market. Let's just see jobs market. That's important information. That's why we're starting to see more pricing or for cuts priced in.
Let's see if there's anything else here. Disscent, if you make it very clear, you think at this moment in time, this is earlier this year because I felt like that was not needed. Um, and that's kind of the situation we're in now. Only would think about doing this. I desented on the balance sheet slow down earlier this year because I felt like that was not needed.
Um, and that's kind of the situation we're in now. Okay. So, in a place where hey, you know, we don't need to be this high. Fine. Timber. Is that going to be too late? Well, that's that's kind of the debate. What but what does it mean to wait six that's also this is going to be an interesting one because it's true once we go into recession it's it's a pooper dupers but until then I don't know like can the Fed bail us out before it happens
weeks is it that critical and I the answer is probably not it could be but it's also the reverse why wait till September if it's just six weeks right that's exactly the thing it doesn't kind of matter just start thinking about do I want to wait and risk something happening. This is what we saw last summer by
Yeah. And there's no there's no other jobs report between now and then. Like you actually get data right after this next Fed meeting, which kind of sucks. So they've got to base it all off this month's data, which was still good. But again, when you go under the hood, you've got the tariff inflation showing up under the hood.
6.6% annualized gain in core goods excluding cars. That's a huge gain in inflation. uh in core goods. You saw it in PPI. And when you look at that jobs market and you peel back the layer, you're like, dang, a lot of those jobs are just government and state and local, you know, private hiring outside of healthcare was like non-existent.
It was like 15,000 jobs we created, which is terrible. By the way, we left July, we left rates, and then boom, we got a very weak um Somebody says it's not the Fed's job to avoid a recession. Sure it is. What are their two mandates? Stable prices, maximum employment. What do you think a recession does?
Absolutely destroys the unemployment rate. It skyrockets. Uh and inflation turns to deflation. So recessions create the opposite of nearly both of their mandates. Bad labor market report. The unemployment rate jumped 210. Payrolls went way down from where they were. And people were screaming at us last August.
You guys should have cut in July. Yeah. So one month, Ken, it it always is one month. Just remember that. It's just one month. That's interesting. He's actually making the argument here that things do change very fast. They should have cut earlier and then the labor market immediately rebounded after their 50 basis point cut.
But we live in a world in which we have to respond to real-time data to kind of sense of where the economy is going. And I've always said if you worry about long and variable lags, which everybody always talks about, the whole point of that is to get ahead of it, not wait for it to happen and then take a policy action that takes quarters or months down the road to actually have any impact.
The new worry is tariffs. We've just had a six-minute conversation with you about monetary policy. You've built a case for lower interest rates and no one's talked about trade or inflation. Two assumptions in your speech yesterday, and I think they're important assumptions. a large share of tariff increases won't be passed through to consumers.
Any increase would fade over the next year or so. What data underpins that conclusion? Good question. Well, one, it's just first, it's just economic theory. So, you put on a tar tariff as long as it's a one-time tariff and that's it. That's a onetime price effect. I mean, this is economic theory. You could not get in any serious economic model persistent inflation from that.
You would have to cook up some other amplification mechanis. really shilling for a rate cut here because he's basically saying like, "Yes, we'll have tariff effects, but don't let those prevent you from preventing us from going into a recession. Don't let the fear of these one-time bumps in prices, which will show up in inflation reports and corporate earnings, but don't let that stop you from cutting because it could lead us to walk right into a recession." And that's what people talk about.
Wages will start going up and everything will get out of control. You're not seeing that at all. This is just not those kind of amplification mechanisms are wage price spirals aren't happening. No, he's right. Tariffs are attacks. And in public finance, you learn that you may levy attacks on a firm, but who bears the incidence or the burden of that tax?
Can be a group of people or one person, not necessarily the firm. So, this is what I've heard from a lot of firms. If there's a 10% tax, they'll force their suppliers to eat some of that cost. workers meet some of that cost in terms of the less hiring and things like that. The firm will take it out of their profit margins.
And then lastly, some of it will get passed on. And as I mentioned last night, I've heard this for months now. Like the rule is 10% it's roughly rule of thumb is a third a third. A third, suppliers will eat a third, firms eat a third, consumer is going to eat a third of that tariff. So if you eat a third of it and it's 10% like I've been arguing this is like 3/10en of a three basic three three ten on the inflation rate for a few months and that's it.
Well it creates a lump and then the next year when you compare to it your inflation's probably flat. Not entirely untrue. And um Uzimo in the chat says it's the perfect time for this clip. Kevin is much more interested than most people by the way in the balance sheet and it'll persist if you do 12 month over 12 month that base effect will not go away for a while and then it'll just drop off a cliff.
So that's why I've been arguing you want to look at like 3 month and 6 months to see if these tariff effects pop up and then go away and so that's more critical than looking at 12 month. Okay. Yes. The way the president is putting these tariffs on might not match up with theory, Chris, the uh smooth holly tax was passed and came into effect on a certain date.
Uh the president has not yet put on most of these tariffs. They're in theory still coming and we still haven't seen the section 232 tariffs for the most part. The the national defense tariffs that he wants to put on semiconductors and pharmaceuticals, etc. So if the process is stretched out, consumers could be hit by a series an ongoing series of tariff increases and given what they've just been through.
Yeah. But a lot of this is going to end up getting absorbed in margins. Uh let's go a little bit further ahead. This rolling potential impact on prices that basically the rolling tariffs that are coming delay the impacts of tariffs and that you you know you're kind of just spreading them out. August and early September.
This was not any contradiction in what we were doing. It's just after the September meeting, the data just came back in the opposite way. Growth was up, productivity was up, employment suddenly took back. This he's talking about last year, August. I think that was really because of enthusiasm around the Trump election.
I do give credit to that. The employ, you know, after the tariffs come on, everybody was worried about deanchoring expectations, particularly after some of these Michigan surveys came out. When I I always look at the market based expectation because money people have money in the game. Firms are making decisions on what they're
in other words he's saying just ignore the Michigan expectations. Focus on what the bond market is telling you. He's right. Chief economists are saying and if those things are wrong, they're going to lose a lot of money. So I've always paid more attention. I haven't seen much in the way of market expectations being unanchored in any ways you want to measure them any forward.
Now in the near term of course they might go up because you would see inflation in the short term but in the longer term ones I'm not I'm not seeing it. So either the market is just dismissing all of this as chatter and noise or at some point if something happens such that it becomes much more serious then you might see a discreet jump and then you know that's that's going to be a problem for everybody.
Yeah. Uh what he's referring to are inflation expectations right here. This is the 5-year inflation expectation chart. And basically, if you just kind of draw a box around this, you can kind of make the argument that eh, it's pretty stable like these. And in fairness, they've always had this mindset.
You get these little variations. They don't care about this. You know, here's where liberation was. Here's the 50 BP cut. Uh, which you could see increased inflation expectations over 5 years. Now you're getting some of this Powell drama over here on the right side. That's the chart he's looking at.
You're not seeing some kind of crazy deankering like frankly you saw at the beginning of 2022. You're not seeing that sort of environment. And that's what he's paying attention to saying we don't have to worry about inflation. Let's just go cut rates because what are we worried about here? It's kind of a fair point.
See how they end this. Honest. We just do our job every day. I go in I just Oh, this is the politics question. Big deal. So, this gives you a few things to think about. This idea about criminal charges against Powell, nothing but Trump magne, whether he's applying for the job or not, is becoming one of your most vocal advocates for a rate cut.
Because he's basically saying, "What's the harm in doing it now versus waiting? And if we wait and cause a recession, we break through the ice, we're screwed." So if inflation is going to rear its head a little bit because of tariffs, that'll go away. Don't let that be the reason we don't cut. So thank Waller for the odds going up for July cut.
Mark your calendar for July 30th. Well, and today for coupon code Mr. Too late, but July 30th for the next Fed meeting. Obviously, we'll be covering it in
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