The Siege of The Fed

FED

The Federal Reserve is like the referee of the American economy. Normally, they are the most quiet people in the room. No noise, just ensuring the fairness of the game. But right now, they are being booed from the stands and tackled on the field. We are bearing witness to the LARGEST existential threat to the Fed, in its 113-year history. It is no longer about interest rates but rather a massive triple threat against the bank’s independence. At this point, the Fed is literally fighting for its own soul amid s the Criminal investigation into Jerome Powell, The Supreme Court showdown over Lisa Cook, and a President demanding immediate rate cuts.

Just on Wednesday, the Fed decided to stand by its decision of holding rates at 3.5% to 3.75% which serves as a big NO to t political pressure but as legal walls are beginning to close in, the question remains: HOW MUCH LONGER CAN THEY HOLD OFF?

At the heart of this is a classic pick your own poison economic problem with the Fed’s view being: The economy is doing well no need to rush and allow inflation spiral again, and The White House view being: High rates are an anchor on the American economy. For an average family, it isn’t just about calculations. This is the difference between finally buying a dream house or being priced out by. Mortgage they can’t afford. It is really a high stock game as President Trump is moving for the immediate slash of rates in order to reduce borrowing costs, Powell on the other hand is against it as he gears the return of the inflation fire that burned them few years back.

The peak of this crisis is the DOJ investigating Jerome Powell. On paper, it’s just the drama over costs of the Fed’s headquarters renovation but in reality, everyone in D.C sees it as it is, a LAW FARE. Powell has been straightforward anyway, saying all these is a way of making him cut down rates.

This brings in the issue of Lisa Cook, the issue Powell see as the most important legal case in the Fed’s history, and he’s totally right. Lisa Cook has been accused, by The President, of a mortgage fraud which she vehemently denied. Apparently, Trump wants her out and the Supreme Court is presently deciding if he has the right to fire her. This decision is quite important because if the President can fire a Fed Governor at will then the Fed starts being a political tool rather than an independent watchdog.

The fact that stock market is booming is the weirdest part of all these. Just this week, the S&P 500 hit 7000. This would have initially been a cause for celebration but it’s only fueling the fire. It’s safe to say that the Fed’s success is what is making the politicians angry. The Fed crisis has moved from just banks to being a test for how we want our country to run. The US Dollar became the world Gold standard because people trusted the Fed to stay out of politics. If that independence is lost over a short term stock market pump? Then long term cost could definitely be the decline of America financial power. Undoubtedly, the Fed is in the fight of its life.

Stephen Moran and Christopher Waller brought an end to the United front of the Fed when they voted to cut rates in Wednesday’s votes which is why Gold prices skyrocketed to $4600/oz. Anxiety crawls in as investors are beginning to find better places to hide their money.