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Fed expertDanielle DiMartino Boothon the Fed's historic day (0:25). Rate cuts and economic despair (7:55). Focused on Fed balance sheet, dot plot (11:00). Powell's uncomfortable position (14:35). Stagflation extremely real (15:55). Get dividends wherever you can (20:10).
Transcript
Rena Sherbill:Danielle DiMartino Booth on what she has already called a historic day. Welcome to day one of theFed meetingmid September. Welcome back to Investing Experts.
Danielle DiMartino Booth:It is great to be here on this day where history has been made. Stephen Miran is now officially a board of governors governor.
RS:Yes. We have some answers. Talk to us. I know that this was a question mark. How surprised were you? Were you surprisedLisa Cookis going to be sitting around the table as far as I've understood it? Talk to us about how you're understanding these decisions.
DDB:It's really interesting that that Miran, who has literally been sworn in on day one of the meeting. This is the fastest in US history that they've ever had somebody confirmed by the US senate.
Remember, this went on - the vote didn't take place until 08:00 eastern time last night, and it was strictly divided along partisan lines 48 to 47.
That is not historically what is preferred, because the Federal Reserve, as we have been told, ad infinitum, is an independent entity, an independent federal agency where, theoretically, governors should get a sweeping majority of the senate, at least a two thirds vote.
It certainly has changed in recent years as appointees, as nominees have become increasingly more partisan.
In fact, speaking of Lisa Cook as well, it took the tie breaking vote of then vice president Kamala Harris in order to get her nomination through the Senate when the time came because her politics were seen as being so very progressive. Lots of division around that gigantic oval table.
Of course, now the fate of Lisa Cook is in the hands of the Supreme Court, and the ruling could have far reaching effects for future administrations of both parties if they, if future presidents have more latitude for whatever reason they deem, they don't like whoever's running the Federal Trade Commission, let's say, or the FDA, whatever it may be.
If the Supreme Court decides to rule in favor of allowing President Trump to fire Lisa Cook for cause, that in and of itself will be very historical, to turn a Supreme Court ruling that dates back to the nineteen thirties that found against then President Roosevelt and his ability to fire the head of a federal agency.
So we are seriously witnessing history and the future as well right now with what is going on at the Federal Reserve Board.
To swing back to Stephen Miran for just a moment.
It is unheard of in Federal Reserve history for an individual to maintain a position in the administration while not getting a paycheck for a few months and planning to step back into a position in the administration, which would seem to fly in the face of Miran's ability to be fully impartial and independent as he has just sworn to do so. You would think that he would have fully embraced the honor of becoming a governor at the Federal Reserve.
RS:I heard on our Wall Street Breakfastpodcastthis morning that also not since 1935 has there been somebody sitting in the White House and also the board of governors at the Fed.
You've been around a while. You've seen some things. You've gained some wisdom and insight and the skill set to articulate it.
A lot of what we talk about in Wall Street Breakfast and in general are these unprecedented times. You're talking about some right now. I mean, I don't know. What do we say about these unprecedented times?
How do we, as observers, as market participants, how do we keep rolling along all these changes? I guess, what would you bring to the table in terms of your experience and wisdom? What would you say to investors, to observers a bit nervous about the shaky ground that they're standing on?
DDB:And I would say that the entire country is also standing on shaky ground.
Decisions that are undertaken that pertain to an economy, that in the views, especially of younger Americans, has shut them out is, it's a heady proposition right now with so much of the anger element, so much of the nihilism being grounded in a lack of economic opportunity.
And these are the moments that we have to appreciate in a historic context as Peggy Noonan in the Wall Street Journal wrote beautifully over the weekend. The difference between the late nineteen sixties and today was that the younger were less apt to simply act on the thoughts the country was divided in being horrified at the assassination of Martin Luther King, of JFK, of his brother, and that the country was able to come together at the time.
Again, if you look at the causes of war throughout US history, and I'm not trying to be hyperbolic here at all, but the basis for so much conflict going back through history has been economics and inequality and a lot of the elements right now that are amplifying the anger element.
So I would hope that all Federal Reserve officials would have a deep appreciation for the role that they're playing today in setting monetary policy at a time when June 2025, that's the most real time indicator that we've gotten absent these massive annual revisions.
But June 2025 is in the history books already as having seen net job losses. The pandemic aside, we're talking about the first time since September 2010.
So there is an awareness out there. There is a residual continuing inflation bite that piles onto the sixty five percent of Americans queried by the University of Michigan who foresee the unemployment rate continuing to rise.
These are levels that are being recorded, 65%. We've never seen these unless we're deep in recession or coming out of recession. Of course, the unemployment rate is a lagging indicator.
Again, it is incumbent upon Federal Reserve officials to appreciate the role that they're playing right now at a time of deep economic divisiveness in the United States.
RS:So it's clear that there's gonna be a rate cut. What is your sense given this depressing economic data that we're seeing, that it's been depressing forlongerthan we even thought before, what is your sense in terms of how deep the cuts are and what's your sense of how much who's sitting where at the table affects that decision and how much pressure is being put on that decision?
DDB:It's a great question because we've just had fairly strongretail salescome out. There was a great, great article in the Wall Street Journal last week that was called the buy now, pay later economy.
So even when we get reassuring news out of of certain data points, we know that so much of the consumption, so much of the spending is dependent upon accessing easy to have credit and or as Moody's reported just this morning, we now have a fresh record high in terms of the percent of consumption that is attributable to the top 10% of earners.
And we saw that in the retail sales data. We saw online sales were very strong, and we saw eating out was very strong. So the have nots, the lower and middle income Americans, they're online searching for the best possible deals that they can get. The haves, they're ordering Wagyu beef and lobster tails.
RS:Let them eat cake.
DDB:Let them eat cake. And so that feeling of economic despair is going to be voiced by of course, it's gonna be voiced by Stephen Miran to the extent that he finds his voice.
Very awkward, uncomfortable Federal Reserve meeting if I could only imagine what it's like in that room today.
But individuals such as as Christopher Waller as well as Michelle Bowman, they both dissented in the July meeting in favor of starting rate cuts in July. Meaning, if the unemployment data continued to weaken, that they would presumably be in favor of a 50 basis point rate cut.
In fact, Waller made a statement to that effect, and that was before the shocking unemployment news hit the wires. Austin Goolsbee of the Chicago Fed, he does not vote until this coming January 2026. Will he be a voice of dissent around the table as well?
Because he said if we see weakening in the job market, before, again, this latest round of very weak jobs data came out that he would be in favor of being more aggressive in the easing stance.
So you could easily, among the voters, see a triple dissent tomorrow on September 17. You could see Waller, Miran, and Bowman all dissent in favor of a larger rate cut at the September meeting.
We'll be zero focused. We'll just be honing right in on on the dot plot. And how many are - I'm just gonna say it. How many are with the dissenters and how many are against them?
How many people feel that if not September, then we need an unusually large 50 basis point rate cut in October. And for that to be followed right away in December, I went into the the the year, QI research went into the year, our official policy stance was that we would see four rate cuts this year and that that would be justified by the economic data.
We now know that May, June, July, and August were all weak. Job market data upon being revised, we've got three months in a row of construction job losses.
Things that a few months ago, we were saying, well, the construction sector is still one of the pillars of strength in the economy. That's been revised away. Manufacturing sector, the job losses there are deepening.
I doubt that five years from now when we see the 2025 FOMC transcripts that we'll see or read or appreciate the nervousness in the room, the awkwardness in the room, and the hostility around that table.
RS:There there used to be that line line or there still is that line, If you don't have a seat at the table, you're probably on the menu. And it feels like at this point, even if you have a seat at the table, you might still be on the menu. It's interesting times for sure.
So the Fed's balance sheet. Dot plot. What else would you say about that in terms of what you're looking for these next twenty four to forty eight hours? And what is your expectation? How should investors be parsing through this data?
DDB:It'll be interesting to see because we did see weakening producer prices, and yet we saw kind of hotter than expected consumer prices.
So how much worry is there going to be that the inflation is not moving towards the Fed's 2% target?
Will we see that play out in the dot plot? Will we see a higher expectation for what the inflation rate at the 2025, 2026, or 2027 might be?
We've got a 4.3%, unemployment rate. Are we going to have policymakers moving up their expectations for joblessness by the end of this year even? We've still got several unemployment, jobless payroll reports to go for 2025.
And are they moving it up even more? Are we gonna see a 5% unemployment rate in 2027 by one of the members as opposed to what used to look like a flat line on the EKG?
Everybody was kind of similar and the same and no disagreement. Are there gonna be people who say, I'm an inflation hawk. I don't think that we should cut rates after September.
My dot plot's gonna say zero rate cuts for the rest of 2025. And are there gonna be individuals whose dots on the plot reflect that they think there should be three or four more in short order?
What we'll be looking at tomorrow is the disparity between the highest and lowest dots, whether you're talking about inflation, unemployment, or expected rate cuts.
RS:And what would you say about the position that Powell himself is in right now?
DDB:Very uncomfortable. I would say he's probably in the fetal position right now. He is the one who's going to have to dismiss any speculation and conjecture. He will say that Lisa Cook's fate is in the hands of the Supreme Court, not his.
He will say that Stephen Miran having been confirmed was the business of the US Senate, which was done legally, and that he therefore had every right to be sitting at that table.
But that is a matter for Congress to take up if anybody has any questions, and then he'll move on.
And I can only expect that because, again, inflation is far enough away from the Fed's 2% target that he will reiterate that every single meeting will be live going forward, that there are no guarantees.
It will depend upon the trajectory of inflation and the balance and tension that we see in future unemployment and payrolls data.
I think that will probably not be pleasing to market participants. He will definitely say we're leaning more on our employment mandate. He'll go there, but he's not gonna give you any guarantees, I don't think, my opinion.
I don't think Powell's gonna provide any guarantees outside of we're on a data dependent path.
RS:And anything to add in terms of thestagflationinflation conversation, curiosity about where we're at and where we may be headed?
DDB:It's interesting you asked that question because if you look at the producer price index, you could there is an actual gauge of margin pressure within that report.
And you could certainly say that at the company level right now, stagflation's extremely real.
Don't get me wrong. Companies have a lot of margin cushion after these last few years to burn through, but there's definitely a margin squeeze at the company level.
The question is, in the retail sales report, we saw yet another negative sign in front of furniture sales. Bank of America real time weekly credit and debit card data shows that there's an absolute collapse in purchases in the home building sector.
We're hearing from Carrier, one of the largest US HVAC companies, that they expect residential construction to be down 40% year over year in the third quarter. That was from a Morgan Stanley conference last week.
My point to you on the stagflation front is that we're not seeing companies be able to push through price increases to the end consumer, and stagflation is defined as high and persistently high consumer prices accompanied by a rising unemployment rate and slowing growth.
We are not there yet for the consumer mainly because purchasing power is what it is absent. People are struggling with filling up their gas tanks and struggling with putting food on the table that they buy, by the way, at the grocery store if they're not in that tony top 10% of earners, and the rent's still too high.
So these are things that working American men and women are battling with right now, and they simply can't afford to pay up for something that is being affected by tariffs. They don't have the money.
RS:Anything you would say out of curiosity - there was theannouncementyesterday that Trump is thinking about changing the reporting of companies from quarterly to, what is it, twice a year. Thoughts?
DDB:Well, see now, I've never been a great big fan of boards of directors incentivizing c suite occupants with gauging their bonuses based on earnings per share that are reported on a quarterly basis because then you can't get c suite occupants to plan for the future and invest in the future.
So if you take that pressure off of them, to take the Trump element out of it because anytime anybody mentions the president, he could actually say I'm all for world peace and tell you how to get there. And even if it was the world's most salient plan, you'd have 50% of the people saying because he said it, I say no.
This is a rare occasion when I think that Warren Buffett himself would be agreeing with President Trump, that getting off this constant roller coaster, merry-go-round ride of every three months reporting, it certainly would not please the media.
The media was like, wait a minute. Woah. That's my bread and butter. What are we gonna talk about every three months? I mean, it's earning season. Play ball. So, yeah, the media certainly is not happy with this, but economists and even investors should be happy with this.
Because if you're an investor, at least if you're a long term investor and not playing meme stocks, you want companies to to endeavor to become long term profitable, not just, what are my earnings per share tomorrow so that I can beef up my bonus?
Maybe I'll buy back a bunch of shares so that I have fewer shares upon which to gauge those earnings per share. Wait. Let's just financialize the balance sheet instead of planning for the future and long term productivity in the United States economy.
But, again, I won't say that I agree with President Trump, but I do because I think Warren Buffett here would agree with him as well.
RS:And then anything to say about - there's always talk of small caps when we're talking about rate cuts. Any talk about looking at the market and, I don't know, words to live by or words to avoid for investors?
DDB:I got one word for investors that's stronger than it ever was as we ponder rate cuts, and that'sdividends. I don't care where you get them. Just get them. That's kind of where I am.
Again, until there is purchasing power, you cannot talk about the domestic beneficiaries of lower interest rates because 25 basis points on a mortgage rate that, by the way, is already priced in is not gonna move the needle in terms of people saying it's a 25 basis point decrease in the mortgage rate.
I'm gonna go buy a mansion. We're not there yet. We need home prices. Home prices are only falling in 80% of major US metros according to all the realtor people out there, but they're just beginning to fall. And, even in go go cities like Austin, they're still north of where they were in 2020.
So affordability is still very impaired, and 25 basis points is not going to unleash this incredible wave of buying that benefits small cap companies, that rely on the domestic economy and are not exposed to international markets.
At the margin, yes. Any and all liquidity is a good thing. I get it. There could be a trade in there, but I'm not sure that you're asking me about a trade.
RS:No. We're talking investing. Although happy to hear your thoughts on trades if you wanna share them.
Anything else that you would leave investors with? Any context fordividendsanywhere you can find them or anything else to share about the next day, the next few days, the next couple weeks?
DDB:To the extent that I think energy prices have been really beat to a pulp here. So to the extent that you can find companies like I'm not gonna name the company. That's probably against every bylaw that my securities attorneys could throw at me.
But there are a lot of energy companies out there that have never cut their dividends.
There are also some MLPs out there with nice fat dividends. Again, in these times, you look for sectors that have been beaten up and are still dividend good.
So that might also be, I don't know, pharmaceuticals that still pay a nice dividend and are not going to go out of business and are gonna continue to be able to throw that cash flow off, not in the form of stock buybacks, but dividends.
So I would there are a lot of great oh, I don't know, Seeking Alpha does a damn good job of doingdividend screensevery week. I see them myself, and there are some great analysts out there who are digging deep to make sure that cash flow is not gonna be fleeting.
RS:Appreciate that. Danielle, always appreciate talking to you, especially in these momentous days when so much is coming at us, and it's nice to talk to people that understand it more than others. So thank you for sharing your insights with us. Thank you for sharing your time. If you would share with our listeners where else they can find you, where they can get in touch, happy for you to remind our audience of that.
DDB:Absolutely,dimartinobooth.substack.com. We publish the daily feather every trading day of the year, which means I never sleep.
And if you're an institutional investor running money, please come toQI Research. We publish eight times a week for our institutions, and we have a really exciting fun Bloomberg chat room. And if you don't already follow me on what they now call x, which I'll always call Twitter, @dimartinobooth.
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