 The Fed’s Iran problem ...
The war driven surge in oil prices has rippled through the global economy, battering Wall Street, house hunters, farmers and more. “The largest supply disruption in the history of the global oil market,” per the International Energy Agency, could also complicate matters for the Fed. Some economists and traders have lowered their expectations for rate cuts this year even as President Trump has urged immediate action. That could put Kevin Warsh, Trump’s pick for Fed chair whom the president expects will push for lower borrowing costs, in a bind. Brent crude, the global oil benchmark, traded at $98.99 a barrel this morning, after closing at a multiyear high yesterday. Its price has surged more than 35 percent since the U.S.-Israeli attacks on Iran began, despite efforts by the Trump administration to cap energy prices, including by easing sanctions on Russia and its oil. Jitters in the oil market remain high: Iran has begun laying mines in the Strait of Hormuz, the waterway through which 20 percent of the world’s oil exports flow. Mojtaba Khamenei, Iran’s new supreme leader, has pledged to keep the strait virtually shut. “A higher inflation path will make it harder for the Fed to cut soon,” David Mericle, the chief U.S. economist at Goldman Sachs, wrote to investors yesterday. Goldman now expects the central bank’s first rate cut of the year to come in September instead of June, citing the war and inflation. (June would be Warsh’s first meeting as Fed chair if confirmed by the Senate.) Futures traders today give a 41 percent chance of any rate cut this year, and certainly not before December. Before the war began, they were betting on two cuts. Warsh’s Senate confirmation hearing could be feisty. (No date has been set yet.) Trump’s nominee criticized a Fed rate cut in September 2024, but has appeared more supportive of lowering borrowing costs since Trump took office last year. Meanwhile, Trump continues to demand action, and fast. Yesterday he chided Jay Powell, the current chair, for not “dropping Interest Rates, IMMEDIATELY.” But the risk of war-driven inflation probably opens Warsh’s position on rates to tough scrutiny from lawmakers. Next week’s Fed meeting may offer big clues on what’s next. Officials will release their quarterly forecast on rate cuts. Credit for this post : Andrew Ross Sorkin The New York Times Deal Book March 13th 2026. Photo from our Adobe Stock library.
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 Heavy Lies The Hand… Beijing Struggles To Balance The Budget …
The “Iron Rooster” era of Austerity Begins. Finance Minister Lan Fo’an’s "Iron Rooster" (铁公鸡) budget is a declaration of fiscal austerity that effectively terminates the era of debt fuelled hyper-growth. In the gilded halls of the Great Hall of the People, the rhetoric usually matches the architecture, grand, sweeping, and expensive. But last week, the script flipped. Finance Minister Lan Fo’an didn’t promise a windfall, he promised a "Tight Balance.” Lan’s proudest boast was becoming an "Iron Rooster”. That’s a Chinese idiom for a miser who won't part with a single feather. He’s slashing administrative budgets by 10% and "breaking every cent in half." While efficiency is a virtue in a startup, it’s a vice in a stalling superpower. When a $18-trillion economy starts counting pennies on office parties, it’s not a sign of discipline; it’s a sign that the "Money Spinner" (land sales) has officially spun out. Bailing Out the Titanic The most damning line in the ledger isn't a cut, it’s a 300-billion-yuan injection into state-owned banks. For years, China’s local governments used "Hidden Debt" (LGFVs) to build bridges to nowhere, keeping GDP targets looking pretty. Now, that mountain of bad paper is threatening to avalanche onto the national banks. This 300-billion-yuan "top-off" is a red flare. It tells us that the systemic risk has finally breached the hull. Beijing is borrowing at the federal level just to keep the ATM machines working. The Ghost of the Chinese Consumer Wall Street was looking for a "Bazooka" of consumer stimulus. Instead, they got a "Water Pistol” to dampen domestic demand. Lan’s strategy relies on a "multiplier effect”, hoping a tiny 100-billion-yuan subsidy will trick the private sector into spending trillions. This is Financial Alchemy. You cannot "leverage" consumers who are watching their primary asset (real estate) deflate like a slow-leak tyre. By removing hard growth targets for the 2026–2030 Five-Year Plan, Beijing is signalling a grim hierarchy of needs: National Security: (Semiconductors, AI, Defense) — FUNDED. State Solvency: (Bank bails, Debt swaps) — PRIORITIZED. The Household: (Wages, Pensions, Consumption) — ABANDONED. The Bottom Line: A Slower, Sharper Dragon The "Iron Rooster" budget confirms our worst-case scenario: Austerity as Policy. By prioritising industrial hardware over human software, Beijing is flirting with the "Middle Income Trap." They are building the world’s most advanced factories to sell products to a world that is raising trade barriers, when their own citizens can’t afford to buy the output. Minister Lan might be able to save 300 billion yuan by being stingy, but he’s losing the future of the Chinese consumer in the process. In the world of global markets, an "Iron Rooster" doesn't lay golden eggs, it just sits on a shrinking nest. Based on an original article by Lingling Wei WSJ "Frugal ‘Iron Rooster’ Budget Signals Pain for Growth and Consumers" Content developed with Google Gemini and our “Publisher, Editor, Journalist, Correspondent” Gem.  The Fermi Paradox of Modern Politics: Why The White House is Failing Basic Math
If you were interviewing for a quantitative role at Goldman Sachs or a data science position in Silicon Valley, you might be hit with a "Fermi problem." Named after the physicist Enrico Fermi, these are offbeat challenges like: How many Ping-Pong balls fit in a Boeing 747? The interviewer doesn’t care if you get the exact number. They care if you have "number sense"—the ability to combine known quantities with rigid mathematical relationships to make sensible statements about the unknown. If the volume of a ball is X and the plane is Y, then the answer is Y divided by X. It is a test of reasoning, scale, and dimension. Lately, however, it appears that the current administration would not only fail the interview—they would likely try to redefine the volume of the plane mid-sentence. In the world of The Saturday Economist, we prize rigorous analysis. We believe that while policy is a matter of opinion, arithmetic is a matter of fact. But we are witnessing an escalation in the use of statistics not as support for arguments, but as rhetorical decoration—a trend that marks a total failure of "epistemic responsibility." The 600% Discount: A Miracle of AccountingIn his recent State of the Union address, President Trump repeated a claim that the administration has slashed prescription drug prices by "as much as 600 percent." Let’s apply some elementary school logic. A 100 percent reduction means the price is zero. The medicine is free. A 600 percent reduction, therefore, requires the pharmaceutical company to hand you the bottle of pills and then pay you five times the original price to take it. Commerce Secretary Howard Lutnick attempted to defend the math by suggesting the percentage reduction is measured relative to the final price rather than the initial one. In this "Lutnick Loophole," moving from $100 down to $25 is framed as a 300 percent reduction. But that is simply not what those words mean. If Joe Biden’s Inflation Reduction Act resulted in a 79 percent decrease in certain costs, would this administration be comfortable framing that as a 376 percent reduction? Of course not. Mathematics is being treated like a flexible yoga pose rather than a structural beam. Statistical HallucinationsThe "600% discount" is just the tip of a very large, mathematically impossible iceberg. Consider the recent claims regarding fentanyl seizures. Attorney General Pam Bondi suggested that administration efforts have saved 119 million American lives (a figure later revised upward to 258 million). For context, the entire population of the United States is roughly 335 million. To "save" 258 million lives suggests a plague of such biblical proportions that it would make the Black Death look like a mild case of the sniffles. Then there is the claim of $18 trillion in new domestic investments generated by tariffs and policy shifts. This figure represents more than half of the entire U.S. Gross Domestic Product. If true, it would signal a rate of economic growth that dwarfs the post-WWII expansion and the Industrial Revolution combined. It doesn't take a policy expert to realize these numbers are grossly out of scale with reality. The Death of Productive DisagreementWhy does this "innumeracy" matter? It isn't just about catching a politician in a lie. It matters because mathematics education isn't just about preparing people for technical jobs; it is about cultivating a basic civic capacity. In a classroom, students learn that numbers impose non-negotiable constraints. Claims must yield when reasoning proves they cannot be true. The definition of a prime number is the same today as it was for Euclid. 2,047 will never be prime, no matter how much a President or a CEO desires it to be. These habits—humility before evidence and respect for shared definitions—are the very things that make political disagreement productive. When we agree on the scale of the problem, we can argue about the solution. But when leaders abandon these constraints, numbers lose their power to clarify. They become "cudgels" used to stun the public into submission. A Return to the MeanMr. Trump’s claims often short-circuit debate entirely. Why bother arguing the ethics of a Department of Homeland Security plan that implies it could deport 100 million people—roughly double the actual number of immigrants in the entire country? These numbers aren't just "untrue"; they are inconsistent with known mathematical axioms. When officials use absurd numbers, it betrays a belief that the American public is incapable of critiquing them. It is a form of intellectual gaslighting. As we look toward the future of civic discourse, we must demand a "repair" of how we engage in public argumentation. Before we can disagree on tax rates or trade barriers, we must reach a common faith that some truths exist and are capable of being discovered. Perhaps the most radical policy proposal for the next four years isn't a new tariff or a tax cut. Perhaps it’s a national refresher course in basic math. After all, if we can't agree that 2 + 2 = 4, we certainly won't agree on how to spend the result. Credits : Credit & Deep Gratitude to Dr Aubrey Clinton and The New York Times. Graphic From Rob Farmer Read the original article : https://www.nytimes.com/2026/02/26/opinion/trump-math-state-of-the-union.html Content developed with Google Gemini and our “Publisher, Editor, Journalist, Correspondent” Gem. #Economics #Mathematics #PublicPolicy #DataIntegrity #SaturdayEconomist  The Constitutional Checkmate: SCOTUS, Section 122, and the New Tariff Math
For the past year, the global trade landscape has felt like a high-stakes game of Calvinball—where the rules are made up on the fly and the points (or in this case, the percentages) only seem to go up. But on February 20, 2026, the U.S. Supreme Court stepped onto the field and blew a very loud, very consequential whistle. In a landmark ruling that has sent shockwaves from the K Street lobbying firms to the manufacturing hubs of Vietnam, the Court struck down the administration’s use of the International Emergency Economic Powers Act (IEEPA) to levy broad tariffs. The reasoning was as old-school as it gets: Tariffs are taxes. Under the Constitution, the power to tax belongs to Congress, not the West Wing. As we digest the implications for The Saturday Economist, it’s clear we aren't just looking at a policy shift; we’re looking at a structural re-ordering of how America interacts with the global economy. The 150-Day ScrambleThe White House reaction was predictably swift. Within 24 hours of the ruling, the administration invoked Section 122 of the Trade Act of 1974, slapping a 15% global tariff back on the table. It was a classic Washington "pivot," but this one comes with a ticking clock. Section 122 only allows for a 150-day window. After that, the President must go cap-in-hand to Congress for an extension. For the first time in this administration, there is a visible ceiling on trade costs. Morgan Stanley Research suggests that net tariffs, which peaked near 16% late last year, will fall to 11%. If Congress remains deadlocked—a safe bet in an election year—those rates could crater to 6%. Who Gains from the "Judicial Discount"?The ruling creates winners in sectors that have been battered by supply chain inflation. We are looking at a potential "judicial discount" for consumer goods:
As Ariana Salvatore, Morgan Stanley’s Head of U.S. Public Policy Research, points out, this won't be a simple "return to sender" process. History suggests refunds are often limited to those who proactively filed litigation. We are entering a phase of "prolonged uncertainty" where lower courts will decide who gets a check and who gets a "thank you for your contribution." The Macro Outlook: Disinflationary Tailwinds?From a purely economic standpoint, the ruling is a breath of fresh air for those worried about stagflation. Michael Gapen, Morgan Stanley’s Chief U.S. Economist, notes that while business hiring plans might not change overnight, the "near-term ceiling" on tariffs provides a crucial safety valve. If the net tariff rate continues to slide, we could see genuine downward pressure on inflation in the second half of 2026. This, in turn, may weigh on the U.S. Dollar. As the "tariff premium" evaporates, global growth looks a little more robust, and the greenback looks a little less invincible. The Final WordThe Supreme Court has effectively reminded the executive branch that while the President can lead the charge on trade, Congress holds the purse strings. For investors and executives, the message is clear: the era of unilateral, open-ended tariff hikes has hit a constitutional wall. The trade war isn't over, but it has certainly become more expensive—and more complicated—to wage. Data and analysis provided by Morgan Stanley Research. For the full technical breakdown, visit Morgan Stanley Insights. This post developed with Google Gemini and our “Publisher, Editor, Journalist, Correspondent” Gem.  Renewables Now Make up 1/4 of U.S. Electricity Generation
Renewable Energy by Katharina Buchholz, Feb 18, 2026In 2025, the share of renewables in U.S. electricity generation has surpassed 25 percent. Over the course of the past 20 years, their share has continuously risen from just 8.6 percent in 2007. At the same time, coal in electricity generation fell from a share of 49 percent to just 16.4 percent last year. While Trump administration's policies regarding renewable energy and greenhouse gases have yet to show their full effect, experts believe that the sector's strong growth as well as efficiency and cost improvements will cause it to expand further – albeit slower – despite some government funding losses and the end of emission limits. In 2022, more electricity was generated from renewable sources in the U.S. for the first time over the course of one year than from coal. That year, renewable energy sources created more than 900 terawatt-hours of electric power in the country compared to a little over 800 that came from coal. On a global scale, this change happened last year as renewables outweighed coal electricity generation in the second half of 2025. Up until 2007, coal accounted for more than 2,000 terawatt hours of electricity in the U.S. before the figure started to declined as regulations around fossil fuels - limits on carbon-intensity and the emissions of toxic elements like mercury - tightened. Electricity generation from natural gas gained pace as a result since it produces somewhat less CO2. To reach the emission goals associated with the net zero age, however, the U.S. would have to continue growing carbon-neutral electricity sources like wind and solar, which have been on a steady upwards climb in the new millennium and are now the second biggest source of electric power in the country. Looking not only at electricity but energy use as a whole, renewables have a longer way to go in the U.S. and globally. Here, renewable energy made up only 9 percent in 2023 as energy sources outside of electricity - most notably petroleum in the form of gasoline - are added to the mix.https://www.statista.com/chart/1503/coal-is-still-americas-predominant-electricity-source/  Axios AM Mike Allen February 13th 2026
Little by little, week after week, a subtle but significant shift is unfolding in American politics: Institutions and even a small but growing number of Republicans are standing up to President Trump, Jim VandeHei and Mike Allen write in a "Behind the Curtain" column. Why it matters: This is hardly COVID, where everyone seemed to resist everything — or even a return to Normal Times, when CEOs and Republicans said something when they saw something alarming. But the law of political gravity is starting to apply to Trump. Simply put, the more unpopular his policies and tactics, the easier it is for even scared Republicans to speak up and institutions to hold their ground. To be clear, the number of House and Senate Republicans willing to cross Trump publicly remains tiny. But everywhere else, resistance is growing. Look how 2026 has started for Trump, and the new pushback he faces, as synthesized by Axios' Zachary Basu: ⚖️ Retribution: A federal grand jury unanimously rejected the Justice Department's attempt to indict six Democratic lawmakers over a video they made urging service members to refuse unlawful orders. It's at least the fifth time that charges against Trump's adversaries or protesters have been turned away by a grand jury. A federal judge also shut down Defense Secretary Hegseth's attempt to punish Navy veteran Sen. Mark Kelly over his role in the video. 🚨 ICE raids: Trump's border czar Tom Homan announced an end to the 10-week ICE surge in Minneapolis yesterday. The president acknowledged his mass deportation campaign could use a "softer touch." 🪖 National Guard: Trump withdrew federalized National Guard troops from L.A., Chicago and Portland after repeated legal defeats and opposition from local leaders. 📦 Tariffs: Six House Republicans joined Democrats to pass a resolution rescinding Trump's tariffs on Canada. The vote became possible as a smaller group of Republicans staged a floor rebellion against GOP leadership. 🗂️ Epstein files: Trump's push to shut down MAGA's Jeffrey Epstein obsession backfired spectacularly. The Justice Department is still grappling with backlash, with Speaker Mike Johnson (R-La.) voicing rare criticism over revelations that DOJ tracked what lawmakers searched while reviewing the files. 📽️ Racism: A chorus of Republicans, led by Sen. Tim Scott (R-S.C.), condemned Trump's reposting of a video that depicted Barack and Michelle Obama as apes. The White House initially defended the decision to post the video, but removed it from Trump's account, blaming a staffer. Later, the president said he "didn't make a mistake." 🇩🇰 Greenland: Trump dominated Davos last month with his threats to seize Greenland by any means necessary — only to retreat amid market turmoil, European fury, warnings from congressional Republicans. 🏦 Fed: The DOJ's criminal investigation of Federal Reserve Chair Jay Powell has drawn deep skepticism from Sen. Thom Tillis (R-N.C.), who has vowed to block confirmation of Powell's successor, Kevin Warsh, unless the probe is dropped.  TARIFF FATIGUE
Alison Morrow CNN Nightcap February 12th A new report from the Federal Reserve Bank of New York confirms what economists have long warned about: The burden of tariffs is borne almost entirely by the people living in the country that imposes them. That simple fact, now learned experientially in 21st century America, is an Econ 101 lesson as foundational as supply and demand. US businesses and consumers last year paid for nearly 90% of 2025’s import taxes, the Fed branch found. That’s hardly surprising: The National Bureau of Economic Research and the Congressional Budget Office recently found roughly the same thing. And while the New York Fed report didn’t parse the split between businesses and consumers, the CBO report, published Wednesday, estimated businesses would continue shrinking their margins slightly to offset the extra costs, while passing on the bulk of the levies — 70% — to consumers. As for those foreign exporters President Donald Trump has long claimed would foot the bill? They’re taking on about 5%, the CBO estimates. In real dollar terms, the tariffs amounted to an average tax increase of $1,000 per household in 2025, according to the non-partisan Tax Foundation. Now, on one hand, these are just your standard academic mumbo-jumbo papers published by a bunch of nerds, for a bunch of nerds. The collective wisdom of economists has never much mattered to Trump when it comes to “the most beautiful word to me in the dictionary,” as he once described tariffs. But the CBO and New York Fed reports landed just as tariff fatigue is hitting hard in DC. In a rare rebuke of Trump’s signature economic agenda, six House Republicans joined with Democrats on Wednesday in a vote that would effectively repeal his tariffs on Canada. The tariffs won’t get repealed, mind you, because even if it passed the Senate, Trump would just veto it. But the brushback from Trump’s own party members didn’t go over well in the West Wing, as one might have guessed. Shortly after the vote, Trump responded with a threat of “consequences” for “any Republican” in Congress who votes against tariffs. Meanwhile, a Supreme Court ruling on the legality of Trump’s tariffs is due any day, potentially tossing his whole agenda into upheaval. In a statement, White House spokesman Kush Desai defended the tariff agenda, noting inflation had cooled and corporate profits have gone up even as “America’s average tariff rate has increased nearly sevenfold.” “The reality is that President Trump’s economic agenda of tax cuts, deregulation, tariffs, and energy abundance are reducing costs and accelerating economic growth.”  Beijing’s push to internationalise the yuan is gaining a new vehicle in Africa. Another major multilateral lender is set to diversify towards the Chinese currency to slash borrowing costs and reduce the risks of dollar volatility.
Multilateral lender Africa Finance Corporation (AFC) has confirmed that a debut panda bond issuance is “on the table for this year”, as it looks to deepen its ties with Chinese capital markets. Banji Fehintola, the executive director for financial services at the AFC, said entering Chinese capital markets was a “natural evolution” of a strategy. A strategy based on an established track record with major Chinese lenders, such as China Exim Bank, the Industrial and Commercial Bank of China (ICBC) and Bank of China. Fehintola said that while the precise timeline had not been set, investor roadshows were complete and a mandate was in place to act “at short notice” once market conditions were right. He said the issuance remained “an important part of our funding plan”. With Chinese benchmark rates at 1.8 per cent compared to more than 4 per cent in the US, AFC could halve its interest burden through the panda bond, which is yuan-denominated debt issued in China by foreign entities. The lender’s AAA rating from S&P Global (China) Ratings and China Chengxin International last year also helps to attract equity from Chinese pension and sovereign wealth funds. Fehintola said these ratings “demonstrate the quality of the institution” and showed the credit profile was excellent for high-level investors from China. AFC is following Afreximbank, another African multilateral lender that issued its inaugural 2.2 billion yuan (US$318 million) panda bond last year. Egypt, became the first African sovereign to enter the market in 2023 with a 3.5 billion yuan issuance. This aligns with Beijing’s goal to internationalise the yuan, allowing African nations or financial institutions to bypass the US dollar reducing their exposure to exchange rate volatility. Fehintola said entry into the Chinese capital market would see the corporation embracing local currency debt. “It is often more efficient to borrow in yuan directly and use that for trade rather than going through another currency first.” He said that given AFC’s “deep pipeline of transactions across the continent” involving large Chinese contractors and buyers, the corporation was already discussing settling transactions in yuan. Fehintola suggested that “yuanisation” was a growing trend, and something “you will certainly see more of” across Africa. Notably, copper-rich Zambia now accepts taxes in Chinese currency, and Africa’s largest bank, Standard Bank, has joined China’s [Cross-Border Interbank Payment System] clearing house to ease cross-border settlements. Beijing has been shifting away from traditional government-to-government lending towards channelling financing through multilateral institutions such as AFC, the African Development Bank and Afreximbank, to mitigate default risks. China Exim Bank has provided US$700 million in direct financing to AFC, which has also raised funds via syndicated loans – including a US$1.16 billion deal in 2024 co-led by ICBC and Bank of China, and a US$1.5 billion facility in late 2024 involving Bank of Communications. By positioning itself as an intermediary, AFC allows Beijing to fund major projects in Africa as it mitigates the risks associated with direct lending to cash-strapped governments.  Foreign automakers are stumbling as the Trump administration's trade war delivers a bruising blow and Chinese automakers bear down, writes Nathan Bomey Axios.
Why it matters: Much of the U.S. conversation over the impact of auto tariffs has centered on Detroit's Big Three but the blast zone extends far beyond General Motors, Ford and Stellantis. By the numbers: Nissan, which was already facing operational issues, said today its quarterly loss doubled from a year ago. Mercedes-Benz posted a 9.2% drop in 2025 revenue, while net profit fell nearly in half. Honda disclosed a 42% plunge in profit and a 2% decline in revenue. Toyota last week replaced its CEO after projecting a 25% decline in net income for the year ended March 31. Volvo Cars reported an 11% revenue decline in 2025 and swung to a loss from a profit a year earlier. The big picture: Trump's protectionist trade framework has bludgeoned foreign automakers, even those with U.S. production footprints. Toyota and Honda have significant American manufacturing operations but continue to rely heavily on an international supply chain, including imports from Japan, (Subject to tariffs). Meanwhile, Chinese automakers including BYD and others, are surging in markets outside the U.S., presenting a serious threat to the Asian and European automakers. BYD last year sold more vehicles than Ford for the first time and sold more pure electric vehicles than Tesla, another first. The bottom line: No automaker is immune to global trade and technology turmoil. [In the UK manufacturing output fell by 0.2% in 2025, compared to last year. Overall growth GDP basis, eased to 1% in the final quarter from almost 2% in the first quarter of the year. Growth of 1.3% year on year will do little to ease the constraints on public sector finance as we move into a new financial year.] JKA  Economics and Financial Markets Analyst - What can we make of the FED decision on rates this month ...
Executive Summary: The "Strategic Pause" Amidst Political Crosswinds The FOMC’s January 2026 decision to maintain the federal funds rate at 3.50% – 3.75% marks a definitive shift from the "insurance cuts" of late 2025 to a high-vigilance "wait-and-see" posture. While the statement acknowledges a "solid" economic expansion and a stabilizing labor market, the internal rift is widening. A 10-2 vote—featuring rare dissents from Governors Waller and Miran—reveals a Committee split between those prioritizing the inflation fight and those fearing a delayed reaction to labor market cooling. 1. The Policy Pivot: From Easing to Evaluation ... After 75 basis points of cuts in Q4 2025, the Fed has hit the brakes. The January statement upgraded the economic assessment from "modest" to "solid," signaling that the US consumer and business investment remain resilient despite previous tightening. Rate Range: 3.50% to 3.75% (Unchanged). The "Neutral" Target: Chair Powell signaled that the Fed believes it is now within the "range of plausible estimates of neutral." This suggests that further cuts are no longer a foregone conclusion but will require clear evidence of disinflation or labor distress. Inflation Sticky-ness: The statement kept the phrase "somewhat elevated," a nod to PCE prices hovering near 2.9% - 3.0%, exacerbated by recent tariff pass-through in the goods sector. 2. The Great Divide: A Non-Consensus Vote ... The most striking element of the meeting was the dual dissent, signalling a breakdown in the Fed’s usual "united front" strategy: Governor Christopher Waller: His dissent in favor of a 25bp cut is seen by analysts as a strategic positioning. As a leading candidate to succeed Powell in May 2026, Waller is signaling a more pro-growth, "dovish" lean that aligns closer to the administration's preference. Governor Stephen Miran: A Trump appointee, Miran has consistently pushed for more aggressive easing, arguing that the neutral rate is lower than the Committee currently believes. Strategic Divergence: This 10-2 split highlights a growing concern that keeping rates at 3.5%+ while job gains remain "low" risks an accidental hard landing, even as headline growth looks “solid." 3. Market Impressions & Macro Risks ... The market reaction was a "hawkish hold." Treasury yields edged higher as the "Dot Plot" and Powell’s rhetoric suggested fewer cuts in 2026 than the 2-3 previously priced in by the OIS curve. Labor Market "Stabilisation": The Fed noted the unemployment rate (sitting at 4.4%) is no longer "edging up" but "stabilising." This removes the immediate pressure to cut for employment support. The "Shadow" Mandate: The elephant in the room remains the political environment. With Chair Powell facing a DOJ investigation and President Trump openly criticising "incompetent" policy, the Fed is desperately trying to assert its independence. Powell’s attendance at the Supreme Court for Governor Lisa Cook’s case underscores the legal and constitutional siege currently surrounding the institution. Digital & Disruptive Tailwinds: Powell alluded to productivity boosts (likely AI-driven) and fiscal stimulus as factors keeping growth robust, which ironically provides the Fed "higher-for-longer" cover. 4. Outlook: The "May Cliff" The Fed is now in a holding pattern until at least June. With Powell’s term ending in May, the "lame duck" period has officially begun. Markets should expect heightened volatility as the battle for the next Fed Chair intensifies, potentially shifting the FOMC from a data-dependent body to one increasingly sensitive to the incoming administration's fiscal expansion plans. |
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