The Prince of Independence: Powell at the Crossroads (Capital Wave)A “Machiavellian moment” on Fed independence.
Join me live at 8:45 a.m. Eastern for Market Masters, where we’ll break down today’s movers, sector flows, insider action, and the trades that matter before the bell. Come get your Runner live at 9 am ET. Just click here to join the chat.
This Friday, Jerome Powell faces his Machiavellian moment. Like the Prince in Niccolò Machiavelli's treatise, Powell must choose between being feared and being loved. All while trying to maintain the illusion of independence… Failure to do so would be an admission that the central bank is just another arm of the state. He must either tell markets what they want to hear or preserve what's left of his institutional credibility. (And I stress… what’s left…) The crossroads of this conference aren't just about interest rates. It's about whether the last pretense of Fed independence dies in Wyoming. Most people ignore Jackson Hole. They think it's just central bankers discussing theory over coffee while pretending to understand each other's math. They're missing the plot. It's a place where academics gather in fishbowl theory to try to influence the global economy and get their picture in the paper. The latter is the plot of Baby's Day Out…
Jackson Hole is truly where the global economy and monetary policy gets rewritten. It's happened four times before. And this Friday might be the fifth. The Ghost of Jackson Holes PastThis academic conference matters more than any Fed meeting. In 1993, central bankers gathered at Jackson Hole and invented modern inflation targeting. But here's what they don't tell you: it was born in secret. The framework was discussed, debated, but not officially announced as policy for two decades. They planted the seeds that would eventually grow into the 2% target that now rules your life. One conference in Wyoming secretly rewired how every major economy on Earth would manage money. In 2010, Ben Bernanke stood at that same podium and signaled QE2 was coming. Markets exploded higher before he finished speaking. That speech normalized money printing as a policy tool. We went from "emergency measures" to "Ongoing BRRRRR" in eight minutes. In 2020, Powell used Jackson Hole to announce "average inflation targeting," which was Fed speak for "we're going to let inflation run hot and see what happens." We found out what happens. Eggs cost $8. Then came 2022. Powell delivered an eight-minute speech that basically pain is coming, deal with it. Markets spiraled while he was still talking. He crushed the pivot dreams and reminded everyone that the Fed could still play the villain when needed. The GILT Crisis followed two months later in England (and they had to pivot again.) Four events. Four moments where academic theory became your grocery bill. The Prince Must Choose His PathMarkets are pricing in an 83% chance of rate cuts in September, according to CME Fedwatch. That’s down from 99% last week… Wall Street was already spending the money. The champagne was on ice. Everyone still expects Powell to validate their assumptions. But Powell faces the classic dilemma from "The Prince." Is it better to be feared or loved? Machiavelli argued that while being loved is desirable, being feared is more reliable. Fear creates predictability. Love creates complacency. The political pressure on the Fed has never been more intense. We're watching the final stages of a 16-year process that started with the financial crisis, accelerated during COVID, and is now approaching its logical conclusion… That’s the complete politicization of monetary policy. If Powell signals aggressive cuts are coming, he chooses to be loved by markets but becomes a vassal to the Treasury. The Prince surrenders his independence for popularity. If he holds firm and stays hawkish, he chooses to be feared. Markets could drop as much as 15% by October, according to Evercore. The political backlash would be nuclear. But he would maintain the illusion that the Fed still has sovereignty. Powell must decide whether to rule or to serve. The Impossible Trinity of PowerPowell faces three mutually exclusive demands, each representing a different master he supposedly serves.
Pick two. You can't have all three. You can't serve multiple masters. This is why Friday matters. Powell's speech will reveal which master he's chosen. Which will make this so historic… Let’s get to the market overview… Continue reading this post for free in the Substack app
|
Subscribe to:
Post Comments (Atom)
0 Response to "The Prince of Independence: Powell at the Crossroads (Capital Wave)"
Post a Comment