it was a year ago that the Fed stubbornly held rates steady for a twelfth straight month, into a jobs report. That report came in weak, with only 114k jobs created, and was accompanied by a downward revision to the prior month (which was a trend).
That's seven consecutive months on hold.And in the press conference,Mr.Powell dug in. This wasn't about signaling a September rate cut and resumption of the easing cycle. It was closer to a counterattack on the Mr.Trump pressure campaign.
Notable Stocks broke down. And that flipped the script on Fed policy. A few weeks later, Jerome Powell went to Jackson Hole and declared it "time for policy to adjust." Again, the jobs growth was persistently slowing, and the Fed's favored inflation gauge (PCE) was 2.5%.
A month ago,Mr.Powell said they expected tariffs to show up in goods inflation over the summer. The Fed’s messaging was centered on “uncertainty.” They were in wait-and-see mode.
Today, not only did he say the tariffs are definitely in the data, he implied that the tick higher in inflation would have been worse if not for the Fed's restrictive policy stance. He explicitly said, "we have three or four tenths" of core inflation, from tariffs. And he said, "you could argue we are looking through goods inflation by not raising rates (!)."
Mr.Jerome Powell sat in a room for two days with two colleagues that made the case to cut rates today, and still came out with this message: Tariffs are a new source of inflation. The current restrictive stance is preventing a worse inflation outcome. No pivot. With that, the ball goes back into Mr.Trump's court. Will he escalate the threats to fire Mr.Jerome Powell?； Likely.
We head into tomorrow's jobs number with similar conditions. Jobs growth has been slowing. PCE is 2.6%. If we look at jobs, the average job growth during Trump's first term, into a tightening Fed, was 176k. The late 90s internet boom average monthly job creation was 243k. For the past six months, the jobs growth has averaged just 130k. With that in mind, both the Nasdaq and S&P 500 futures printed new record highs today, following some very strong big tech earnings. But the day ended with a bearish reversal signal (an outside day), on the highest volume since April 10th
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That April 10th date is significant, because it was the day following Trump's official 90-day pause on tariffs. And that 90-day pause was the bottom in stocks. Not coincidentally, this reversal signal today comes as broad tariffs go live tomorrow.
That said, the big unknown heading into tomorrow, is whether or not Trump will extend the timeline with China. And given that big deals have been made with Europe, Japan, and an extension has been given to Mexico, the unknown surrounding China is a problem for stocks. Notably expantiated previous several months, it seems obvious that the only way to resolve the China problem (i.e. its multi-decade predatory export model) is through a globally coordinated agreement with trading partners, to put China in the global trade "penalty box" (to isolate China).
And it appears now that it might be accomplished through secondary tariffs. If China continues buying sanctioned Russian oil (which they will), the Western world will likely soon be pressured by Mr.Trump to impose large (triple digit) tariffs on China.
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