Inflation wasn't bad this morning, hitting in-line with most expectations, but it's still looking pretty sticky around the mid-2% level. Odds of the Federal reserve cutting interest rates again in December are about a coin flip. But there are compelling reasons to think it may not happen, or that if it does, it might be the last one before a stretch of reconsideration by the market and policymakers.

The economy continues to stay stronger than almost everyone has anticipated. So far that's happened without prices increasing, which has been the perfect Goldilocks scenario for risk-taking in markets. But that calculus may be changing somewhat over the past two months since the Fed took a heavy swing of the hammer with 50-basis points in September and another 25 after the election. Inflation is still full of positive numbers and the message from the market with the bond sell-off and steep rise in the dollar suggest regime change is afoot. 

Part of that regime change might be attributed to the incoming Trump administration, but the move in bonds is still more attached to the economy and the Fed. The yield curve has been bear-steepening, which is a message about growth, and auctions have been catching plenty of demand, so it's very hard to argue there's some message about fiscal expectations getting baked in. The same goes for the dollar: pretty much everything can be explained by the U.S.'s superiority economically to the rest of the world. So, talking purely on economic merits, the path for the Fed is probably shifting less dovish as it looks like Powell's cuts maybe accomplished the goal of supporting the economy, possibly giving it a boost.

Okay but then there is a very real conversation about Trump policy that needs to happen. And it is, to quote my favorite politician Marty Huggins, "a mess." We've got the DOGE mandate formally announced, which means potentially a lot of layoffs are coming for the economy if Elon and Vivek fulfill their purported goal of firing millions of government employees. Is the private market ready to absorb that human capital? Are paper pushers at the Department of Education about to go work for Nvidia (NVDA)? And of course, there's the tension between the incoming admin and the Fed. I hope this gets nipped in the bud early by reports that Trump's team are not going to seek to fire Powell, and that Powell knows his legal grounding to stand and fight. 

But just consider this one thing: Ramaswamy in our interview said the Fed had abetted inflation and been implied they were a source of economic problems. If our new policymakers actually believe this – that despite the economy beating every expectation year after year, inflation coming down from 9%, and stocks at all-time highs, that the Fed somehow hasn’t done their job right – then literally anything is possible. When your logic is this broken, the chances of illogical things happening is very high. If the new admin thinks the Fed is abetting inflation, does that mean they think they should hike again? Stop cutting? But then Trump is known for loving lower rates. So, who knows what the heck is going to happen? 

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