I Got You Fam

The Federal Reserve announced rate cuts for next year with unemployment below 4%, economic growth above 3%, and inflation still sticky at 4%. By every measure of its stated mandate, the Fed should be holding steady. Yet it's pivoting to stimulus. Something other than economic necessity is driving this decision.

• The Fed is protecting asset prices, not managing inflation. Powell's December announcement follows the exact pattern from December 2018, when the Fed reversed course on rate hikes despite a strong labor market. The only difference is that one scenario had an actual bear market to fix.
• This isn't new partisan politics, but it is politics. The pattern repeats across administrations. When the White House wants stimulus, the Fed eventually delivers it, regardless of what their stated mandates say about independence.
• The inflation target has become a fiction. The Fed raised its effective tolerance for inflation without admitting it. A 2% target has become whatever number keeps markets happy through the next election cycle.
• Today's party gets paid for tomorrow. Lower rates mean cheaper debt service for government and higher asset prices for those who own them. The cost shows up later as inflation that always "comes home to roost."
• The question becomes how long the story holds. The gap between what the Fed says it does and what it actually does grows wider. When that gap becomes too obvious to ignore, the currency of narrative itself breaks down.