Powell’s Pickle

As soon as Greg Ip wrote his asinine “What’s Wrong With the Economy? It’s You, Not the Data” piece in The Wall Street Journal last week, I had a funny feeling Karma was about to bite The Establishment in the ass.

Well, Karma acted like a real Karen yesterday when the inflation numbers came out.

In a showing that surely made Joke Biden take a deep sniff, the CPI rose 3.5% in March. Core prices, which exclude volatile food and energy costs, rose by an even greater 3.8%.

Credit: The Wall Street Journal

You see, Biden looks increasingly desperate at the polls and would like a little help from his Federal Reserve Chairman. But cutting rates into higher inflation is a big ask. And it’d look like the Fed isn’t independent, as we all know it is. As the kids say… Whatever.

Meanwhile, at the Eccles Building, Jay Powell wonders if it’s possible to remain Fed Chairman without getting a new boss.

But I’ll get to Biden and Powell in a bit. First, let’s look at what Ip said:

In The Wall Street Journal’s latest poll of swing states, 74% of respondents said inflation has moved in the wrong direction in the past year.

This assessment, which holds across all seven states, is startling, sobering—and simply not true. I’m not stating an opinion. This isn’t something on which reasonable people can disagree. If hard economic data count for anything, we can say unambiguously that inflation has moved in the right direction in the past year.

In the 12 months through February, inflation, according to the century-old consumer-price index, was 3.2%, compared with 6% a year earlier. Use a slightly different time horizon, or a slightly different measure (such as the index the Federal Reserve prefers) and you get similar results. Take out food and energy—or for that matter look only at food and energy—and inflation is still down.

Yes, some individuals faced higher inflation (someone who bought a house, for instance) but, for the average person, inflation went down.

Yet the average person thinks it went up.

First, define “hard” economic data. Everyone, and I mean everyone, knows the numbers are massaged whenever they need to be.

But that’s nothing. The fundamental error is how Ip thinks about economic numbers versus the unimpeachable evidence of a person’s increasingly light wallet.

Ip is examining the change in inflation from year to year. The “century-old” CPI was 6% and then 3.2%. According to Ip, if you think inflation went up, you’re a bonehead.

Here’s what Ip’s missing. If an item cost $1 two years ago, last year it would’ve cost $1.06 ($1 x 1.06). This year, it costs $1.09 ($1.06 x 1.032). That’s a 9% price increase in aggregate.

And members of the “Intelligentsia” wonder why you’re not grateful that your President reduced inflation! How very dare you, you ingrate!

Another problem with his “logic” is this: who’s the average person? Hint: nobody.

Let me use dice to make the point.

Take a die (one-half of a pair of dice). It’s got six sides. You can roll a 1, 2, 3, 4, 5, or 6.

What’s the average, or, as mathematicians would say, the expected value of a roll of that die?

It’s 3.5 [(1 + 2 + 3 + 4 + 5 + 6) / 6 = 3.5].

Can you roll a 3.5?

No!

That’s why casinos use a pair of dice, where the expected value (3.5 x 2 = 7) is a possible outcome.

So Ip expected an “average” answer from someone who doesn’t exist. Some reporting!

As Zero Hedge posted on X:

Credit: @zerohedge

The upshot is you’re not crazy. It’s them, not you.

Now, let’s get to Biden and Powell.

Meet the New Boss, Same as the Old Boss

With Roger Daltrey screaming those lyrics in his ear, Powell knows, ceteris paribus as his PhDs say, his old boss, one Donald J. Trump, may very well be elected his new boss this November.

How can this be?  Powell must ask himself this every day.

After all, Trump was the man who initially shut down the country during the pandemic-inspired government-mandated private-sector shutdown.

Trump ran up the national debt to previously unheard-of levels. (One of his successor’s few “successes” is beating Trump deficit-wise.)

Finally, Trump let Jerome Powell cut rates to practically nothing to save the stock market from tanking in late 2018.

“How can Trump even be in this race?”

It’s about as likely as Joe Biden finding the phantom corners in his Oval Office.

And yet, here we are.

Here’s Powell’s Pickle: how can he get Biden back into the Oval Office while not sacrificing the Fed’s alleged independence and his legacy?

It already looks like Biden is pulling a Nixon to Powell’s Burns:

Credit: @QTRResearch

Credit: @zerohedge

But here’s the thing: the Fed really only acts when the stock market is in danger. According to Bob Byrne, one of James Altucher’s deputies and Paradigm’s Dealmaker-in-Chief, that will be the catalyst for a cut.

Strategic Intelligence contributor and the most complex working man in the newsletter business, Dan Amoss, agrees. “If we see a 5-10% quick correction, I wouldn’t put it past him to do a 50 bps cut!”

But if this weren’t an election year, would we even discuss a possible rate cut?

In Another World…

Pictured taking a deep breath of relief after the President pardoned him on Thanksgiving, Larry Summers posted this on X:

Credit: @LHSummers

Oh, Larry. Larry, Larry, Larry.

Don’t you know this is Clown World? Or, as pols call it, an “election year.”

All the rules, including raising rates to fight high inflation, go out the window.

At all costs and against all odds, the Democrats must return Joke Biden, or his skinsuit, to the White House.

If they don’t, The Donald will return with a vengeance.

Wrap Up

So that’s the plan.

Get Biden in. But how? They’ve got to get the Fed to buy in. Or, just go over the Chair’s head to get the cuts done.

The cuts will temporarily goose the stock market, and Biden rides the wave back into 1600 Pennsylvania Avenue.

And Jay Powell’s legacy? Who cares! One man sacrificed for the greater good.

I’ll say this about Powell’s Pickle: it ain’t no gherkin!