On July 29th, the speaker delivered a debrief of the recent FOMC meeting, critically assessing what they called "Kevin's" (the Fed Chair's) "awful" performance.
**Pre-FOMC Context:**
Leading up to the meeting, the Fed had become increasingly hawkish. Despite a remarkably soft recent CPI and core CPI print (zero month-over-month), FOMC members, including Governor Waller, had expressed strong concerns about inflation not moving in the right direction, hinting at imminent rate hikes. The Fed perceived inflation risks stemming from tariffs, the ongoing AI build-out, and escalating energy prices due to worsening geopolitical conflicts. While the market had priced in two hikes later in the year, starting in September, the speaker personally believed a July hike was possible, noting the Fed's stated willingness to surprise markets and the political complications of hiking closer to the midterms.
**FOMC Outcome and Press Conference:**
The market was initially "pleasantly surprised" by the decision not to hike rates. However, the subsequent press conference was "very obviously hawkish." This was underscored by three dissenting Fed voters who favored a hike. The Fed Chair emphasized price stability and maintained an upbeat assessment of the labor market. The speaker noted a subtle contradiction, suggesting that elements like a potential "productivity boom" or "negative supply shock" might typically warrant a less aggressive stance, but the overriding emphasis remained on price stability.
**Two Major Concerns from the Chair's Press Conference:**
1. **The Alleged Absence of Mandate Conflict:**
The first major concern for the speaker was the Chair's assertion that the Fed's dual mandates of full employment and price stability are not in conflict. The speaker argued this contradicts traditional economic understanding, where efforts to curb inflation often impact the labor market, and vice-versa. When pressed to explain the mechanism by which monetary policy works without this conflict, the Chair provided what the speaker characterized as a "long word salad," mentioning lending, credit, confidence, and foreign exchange channels, while stating the Fed is "not in the fine-tuning business."
The speaker then launched a broader critique of the Chair, drawing on his historical record as a former Fed governor. They described him as consistently "too hawkish," even before the 2008 financial crisis, and having been on the "wrong side of the policy debate." The speaker attributed this to the Chair's adherence to "monetarism"—a framework that viewed the Fed's balance sheet expansion (QE) as inflationary, despite a decade of evidence showing consistently low inflation post-GFC. This, the speaker concluded, indicated an inability to learn, an "ideological" stance, and "magical thinking" not adjusted by evidence.
2. **The "Secret" Inflation Target:**
The second, and perhaps most market-concerning, issue arose from the Chair's response regarding the 2% inflation target. While acknowledging that the official strategy document references PCE inflation, the Chair "nonchalantly" stated that he personally considers a "broader set of inflation data" and would not "fully reveal his cards" on how he thinks about it.
The speaker interpreted this as the Fed Chair operating with a "secret inflation target," which is deeply unsettling for bond investors. This ambiguity created significant uncertainty about the Fed's commitment to a clearly defined and measurable inflation goal. As a direct result, the 30-year long bond yield "exploded higher" during the press conference, reflecting the market's heightened concern about the Fed's transparency and its long-term commitment to price stability.
**Conclusion:**
In summary, the speaker concluded that the press conference was a "very poor performance" and a "disaster," suggesting the Fed Chair would be better served by refraining from public communication.