All IN

The FOMC meeting will conclude today, and by 2 pm Eastern time we will have the new discount rate that will dictate short term rates for the dollar world. The market expects a 25 bps rate cut, and the justification will float around weakness in the job market and relative price stability. But the reality is they don’t have good data to make those decisions, particularly if we’re talking about decimal points in both metrics. The charts below show the data quality around unemployment and inflation. At the top, the payroll number has had the biggest correction in history, halving the employment numbers for the last year. That’s a 50% margin of error. At the bottom, we have the percentage of goods in the CPI basket that are now estimated or guessed. It is now 36%. With those (potential) errors in the numbers, how can anyone make a decision regarding decimal points? In other words, the data dependent Fed will now have a more political component in their decisions, specially now that Trump will be proposing candidates for Fed governors that are closer to his views on the economy, whatever those are. That means fiscal policy and monetary policy will be dictated, or very much influenced by, the White House. And that means, we’re all in.

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