Powell Just Admitted the Fed is Using a Magic Eight Ball

Hey there—

This is Garrett Baldwin…

Jerome Powell stood at the podium today and basically gave the monetary policy equivalent of "we really don't know what we're doing, but we're gonna do it very confidently."

I read his speech in the time it would take my grandmother to drive to the store and pick out milk.

It went on forever.

But I was done within about six minutes because the translation was crystal clear: they just enabled more hedge fund leverage and fired up the money printer again.

Let me walk you through what really happened at Jackson Hole, because the market ripping 900 points isn't about confidence in Fed policy.

It's about the Fed admitting they're lost.

The Beautiful Admission of Confusion

Powell dropped this gem: "In this environment, distinguishing cyclical developments from trend or structural developments is difficult."

Translation: Our PhDs have fancy models, but they really can't tell their ass from their elbow.

Here's the specific data that has them lost: Job growth collapsed from 168,000 per month to 35,000. That's not a slowdown—that's hitting a brick wall. Yet somehow unemployment is still only 4.2%.

Powell called this a "curious kind of balance."

Curious is the wrong word. When the entire labor market stops making mathematical sense, that's actually terrifying. It speaks to what else he admitted—immigration was impacting it, labor demand was down, labor supply was down, and they're completely confused.

The Tariff Confession

Then we get to tariffs. Powell said "the effects of tariffs on consumer prices are now clearly visible."

This is where it gets interesting. They're cutting rates into the face of higher inflation.

With $37 trillion in debt, they can't fight inflation like Volcker did in 1987. They are choosing 1970 over 1930—surrendering to inflation rather than fighting it.

Paul Tudor Jones warned that tariff wars will act like a huge trigger. If China retaliates, supply chains could break, inflation could spike, and the Fed would have to choose between fighting inflation and saving US markets.

What did they choose in 2020? They promised to let inflation run a little hot. Well, that whole concept is dead.

Powell literally said there was nothing intentional or moderate about the inflation that arrived—which means we tried to cook a nice dinner and burned down the entire kitchen.

The Real Translation

Here's what Powell's Fed-speak actually means: We're gonna hear the end of quantitative tightening probably in September or October. They're gonna engage in quantitative easing without calling it that.

Lower rates impact the collateral multiplier in the financial system, creating more leverage and more capacity for capital. And here's the kicker—as Powell was talking about tightening, we walked into today with the loosest financial conditions since COVID started.

There's No Bull or Bear Market Anymore

Someone told me today that "the Fed is not your bull market bodyguard—it's a referee with a narrow rulebook."

That's completely wrong. Since 2008, every significant market correction has triggered a Fed response. QE explicitly targeted asset prices. The Fed intervened in repo markets, corporate bonds, and even considered buying equities.

Here's the truth: There is no such thing as a bullish or bearish market anymore. There is a liquid market and there is an illiquid market. And that's why they're going to ease and let this thing run.

We are not managing an economy anymore. We're managing a financial event where we're effectively betting on which bureaucrat will blink first.

What This Means for Your Money

Today's hedge funds loaded up—that's not de-risking, they are re-risk taking. The same funds that amplified the August selloff are now piling back in.

Here's my positioning for this new liquidity cycle:

15% of my portfolio is in gold (targeting $4,000 within the next year)
5% in silver
Capital efficient companies like Dominoes, John Deere, Berkshire Hathaway—companies that turn $1 into many dollars
Utilities and midstream energy (electricity costs are already outstripping everything)

The Fed just guaranteed they'll keep the trillion-dollar basis trades alive that regulators are worried about. Powell has ensured these leveraged bets will get bigger.

The Bottom Line

The market understood immediately: When your central bank admits they're confused about the labor market, tariffs are screwing everything up, and their framework failed harder than expected, the only rational response is to buy everything that isn't nailed down.

We're too leveraged, too indebted, too fragile to take the pain like we could in 1987. So they're going to accommodate everything to prevent something from happening on their watch.

That's not monetary policy. That's surrender with extra steps.

Stay positive,

Garrett

P.S. Make sure to catch me live on Monday in the TheoTrade Chatroom.

P.P.S. I'll also be live on Monday in the pre-market, you can join here.

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